| Ethics | The study of moral principles that govern behavior; in finance, the rules of conduct guiding professional practice |
| Ethical conduct | Behavior that balances self-interest with the impact on others; goes beyond legal compliance |
| Code of ethics | A set of principles and expectations that govern the behavior of individuals and organizations, providing a general framework for ethical action |
| Standards of conduct | Specific benchmarks for minimally acceptable professional behavior; more detailed and enforceable than a code of ethics |
| Profession | An occupational group characterized by specialized knowledge, service to others, a common body of knowledge, oversight by a governing body, and adherence to high ethical standards |
| Trust | Confidence placed by clients and the public in investment professionals to act honestly and in others’ interests; the foundation of the client-professional relationship |
| Fiduciary standard | The highest duty of loyalty and care; requires acting in the client’s best interest and eliminating or mitigating conflicts |
| Suitability standard | Requires that recommendations be appropriate for the client’s situation, but permits conflicts to exist if disclosed |
| Asymmetric information | A situation where investment professionals have more knowledge than their clients, creating the need for trust and ethical standards |
| Situational influences | External factors (peer pressure, incentive structures, time pressure, loyalty conflicts) that can push individuals toward unethical behavior |
| Ethical decision-making framework | CFA Institute’s structured 4-step approach: (1) Identify facts, stakeholders, duties; (2) Consider alternatives and consequences; (3) Decide and act; (4) Reflect on outcomes |
| Legal standards | The minimum acceptable behavior required by law — the floor; ethical standards are higher |
| Ethical vs. legal | Conduct can be legal but unethical (exploiting client ignorance) or ethical but illegal (whistleblowing in unsupportive jurisdictions); CFA requires following the stricter standard |
| Rationalization | A self-serving justification for unethical behavior (e.g., “everyone does it,” “it’s not illegal,” “nobody will find out”) |
| Self-regulation | The concept that a profession governs itself through its own standards and enforcement, rather than relying solely on external regulation |