2024 CFA© Program Curriculum Level I Volume 6 Portfolio Management, Ethical and Professional Standards

How to Use the CFA Program Curriculum
	Errata
		Designing Your Personal Study Program
		CFA Institute Learning Ecosystem (LES)
		Feedback
Portfolio Management
	Learning Module 1	Portfolio Management: An Overview
		Introduction
		Portfolio Perspective: Diversification and Risk Reduction
			Historical Example of Portfolio Diversification: Avoiding Disaster
			Portfolios: Reduce Risk
		Portfolio Perspective: Risk-Return Trade-off, Downside Protection, Modern Portfolio Theory
			Historical Portfolio Example: Not Necessarily Downside Protection
			Portfolios: Modern Portfolio Theory
		Steps in the Portfolio Management Process
			Step One: The Planning Step
			Step Two: The Execution Step
			Step Three: The Feedback Step
		Types of Investors
			Individual Investors
			Institutional Investors
		The Asset Management Industry
			Active versus Passive Management
			Traditional versus Alternative Asset Managers
			Ownership Structure
			Asset Management Industry Trends
		Pooled Interest - Mutual Funds
			Mutual Funds
		Pooled Interest - Type of Mutual Funds
			Money Market Funds
			Bond Mutual Funds
			Stock Mutual Funds
			Hybrid/Balanced Funds
		Pooled Interest - Other Investment Products
			Exchange-Traded Funds
			Hedge Funds
			Private Equity and Venture Capital Funds
		Summary
		References
		Practice Problems
		Solutions
	Learning Module 2	Basics of Portfolio Planning and Construction
		Introduction
		The Investment Policy Statement
			The Investment Policy Statement
			Major Components of an IPS
		IPS Risk and Return Objectives
			Return Objectives
		IPS Constraints
			Liquidity Requirements
			Time Horizon
			Tax Concerns
			Legal and Regulatory Factors
			Unique Circumstances and ESG Considerations
		Gathering Client Information
		Portfolio Construction and Capital Market Expectations
			Capital Market Expectations
		Strategic Asset Allocation
		Portfolio Construction Principles
			New Developments in Portfolio Management
		ESG Considerations in Portfolio Planning and Construction
		Summary
		Practice Problems
		Solutions
	Learning Module 3	The Behavioral Biases of Individuals
		Introduction
		Behavioral Bias Categories
		Cognitive Errors
			Belief Perseverance Biases
			Processing Errors
		Emotional Biases
			Loss-Aversion Bias
			Overconfidence Bias
			Self-Control Bias
			Status Quo Bias
			Endowment Bias
			Regret-Aversion Bias
		Behavioral Finance and Market Behavior
			Defining Market Anomalies
			Momentum
			Bubbles and Crashes
			Value
		Summary
		References
		Practice Problems
		Solutions
	Learning Module 4	Introduction to Risk Management
		Introduction
		Risk Management Process
		Risk Management Framework
		Risk Governance - An Enterprise View
			An Enterprise View of Risk Governance
		Risk Tolerance
		Risk Budgeting
		Identification of Risk - Financial Vs. Non-Financial Risk
			Financial Risks
			Non-Financial Risks
		Interactions Between Risks
		Measuring and Modifying Risk: Drivers and Metrics
			Drivers
			Metrics
		Risk Modification: Prevention, Avoidance, and Acceptance
			Risk Prevention and Avoidance
			Risk Acceptance: Self-Insurance and Diversification
		Risk Modification: Transferring, Shifting, and How to Choose
			Risk Shifting
			How to Choose Which Method for Modifying Risk
		Summary
		Practice Problems
		Solutions
Ethical and Professional Standards
	Learning Module 1	Ethics and Trust in the Investment Profession
		Introduction
		Ethics
		Ethics and Professionalism
			How Professions Establish Trust
			Professions Are Evolving
			Professionalism in Investment Management
			Trust in Investment Management
			CFA Institute as an Investment Management Professional Body
		Challenges to Ethical Conduct
		Ethical vs. Legal Standards
		Ethical Decision-Making Frameworks
			The Framework for Ethical Decision-Making
			Applying the Framework
		Conclusion
		Summary
		Practice Problems
		Solutions
	Learning Module 2	Code of Ethics and Standards of Professional Conduct
		Preface
			Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct
			Standards of Practice Handbook
			Summary of Changes in the Eleventh Edition
			CFA Institute Professional Conduct Program
			Adoption of the Code and Standards
			Acknowledgments
		Ethics and the Investment Industry
			Why Ethics Matters
		CFA Institute Code of Ethics and Standards of Professional Conduct
			Preamble
			The Code of Ethics
			Standards of Professional Conduct
		Practice Problems
		Solutions
	Learning Module 3	Guidance for Standards I–VII
		Standard I(A): Professionalism - Knowledge of the Law
			Standard I(A) Knowledge of the Law
			Guidance
		Standard I(A): Recommended Procedures
			Members and Candidates
			Distribution Area Laws
			Legal Counsel
			Dissociation
			Firms
		Standard I(A): Application of the Standard
			Example 1 (Notification of Known Violations):
			Example 2 (Dissociating from a Violation):
			Example 3 (Dissociating from a Violation):
			Example 4 (Following the Highest Requirements):
			Example 5 (Following the Highest Requirements):
			Example 6 (Laws and Regulations Based on Religious Tenets):
			Example 7 (Reporting Potential Unethical Actions):
			Example 8 (Failure to Maintain Knowledge of the Law):
		Standard I(B): Professionalism - Independence and Objectivity
			Guidance
		Standard I(B): Recommended Procedures
		Standard I(B): Application of the Standard
			Example 1 (Travel Expenses):
			Example 2 (Research Independence):
			Example 3 (Research Independence and Intrafirm Pressure):
			Example 4 (Research Independence and Issuer Relationship Pressure):
			Example 5 (Research Independence and Sales Pressure):
			Example 6 (Research Independence and Prior Coverage):
			Example 7 (Gifts and Entertainment from Related Party):
			Example 8 (Gifts and Entertainment from Client):
			Example 9 (Travel Expenses from External Manager):
			Example 10 (Research Independence and Compensation Arrangements):
			Example 11 (Recommendation Objectivity and Service Fees):
			Example 12 (Recommendation Objectivity):
			Example 13 (Influencing Manager Selection Decisions):
			Example 14 (Influencing Manager Selection Decisions):
			Example 15 (Fund Manager Relationships):
			Example 16 (Intrafirm Pressure):
		Standard I(C): Professionalism – Misrepresentation
			Guidance
		Standard I(C): Recommended Procedures
			Factual Presentations
			Qualification Summary
			Verify Outside Information
			Maintain Webpages
			Plagiarism Policy
		Standard I(C): Application of the Standard
			Example 1 (Disclosure of Issuer-Paid Research):
			Example 2 (Correction of Unintentional Errors):
			Example 3 (Noncorrection of Known Errors):
			Example 4 (Plagiarism):
			Example 5 (Misrepresentation of Information):
			Example 6 (Potential Information Misrepresentation):
			Example 7 (Plagiarism):
			Example 8 (Plagiarism):
			Example 9 (Plagiarism):
			Example 10 (Plagiarism):
			Example 11 (Misrepresentation of Information):
			Example 12 (Misrepresentation of Information):
			Example 13 (Avoiding a Misrepresentation):
			Example 14 (Misrepresenting Composite Construction):
			Example 15 (Presenting Out-of-Date Information):
			Example 16 (Overemphasis of Firm Results):
		Standard I(D): Professionalism – Misconduct
			Guidance
		Standard I(D): Recommended Procedures
		Standard I(D): Application of the Standard
			Example 1 (Professionalism and Competence):
			Example 2 (Fraud and Deceit):
			Example 3 (Fraud and Deceit):
			Example 4 (Personal Actions and Integrity):
			Example 5 (Professional Misconduct):
		Standard II(A): Integrity of Capital Markets - Material Nonpublic Information
			Standard II(A) Material Nonpublic Information
			Guidance
		Standard II(A): Recommended Procedures
			Achieve Public Dissemination
			Adopt Compliance Procedures
			Adopt Disclosure Procedures
			Issue Press Releases
			Firewall Elements
			Appropriate Interdepartmental Communications
			Physical Separation of Departments
			Prevention of Personnel Overlap
			A Reporting System
			Personal Trading Limitations
			Record Maintenance
			Proprietary Trading Procedures
			Communication to All Employees
		Standard II(A): Application of the Standard
			Example 1 (Acting on Nonpublic Information):
			Example 2 (Controlling Nonpublic Information):
			Example 3 (Selective Disclosure of Material Information):
			Example 4 (Determining Materiality):
			Example 5 (Applying the Mosaic Theory):
			Example 6 (Applying the Mosaic Theory):
			Example 7 (Analyst Recommendations as Material Nonpublic Information):
			Example 8 (Acting on Nonpublic Information):
			Example 9 (Mosaic Theory):
			Example 10 (Materiality Determination):
			Example 11 (Using an Expert Network):
			Example 12 (Using an Expert Network):
		Standard II(B): Integrity of Capital Markets - Market Manipulation
			Guidance
		Standard II(B): Application of the Standard
			Example 1 (Independent Analysis and Company Promotion):
			Example 2 (Personal Trading Practices and Price):
			Example 3 (Creating Artificial Price Volatility):
			Example 4 (Personal Trading and Volume):
			Example 5 (“Pump-Priming” Strategy):
			Example 6 (Creating Artificial Price Volatility):
			Example 7 (Pump and Dump Strategy):
			Example 8 (Manipulating Model Inputs):
			Example 9 (Information Manipulation):
		Standard III(A): Duties to Clients - Loyalty, Prudence, and Care
			Standard III(A) Loyalty, Prudence, and Care
			Guidance
		Standard III(A): Recommended Procedures
			Regular Account Information
			Client Approval
			Firm Policies
		Standard III(A): Application of the Standard
			Example 1 (Identifying the Client—Plan Participants):
			Example 2 (Client Commission Practices):
			Example 3 (Brokerage Arrangements):
			Example 4 (Brokerage Arrangements):
			Example 5 (Client Commission Practices):
			Example 6 (Excessive Trading):
			Example 7 (Managing Family Accounts):
			Example 8 (Identifying the Client):
			Example 9 (Identifying the Client):
			Example 10 (Client Loyalty):
			Example 11 (Execution-Only Responsibilities):
		Standard III(B): Duties to Clients - Fair Dealing
			Guidance
		Standard III(B): Recommended Procedures
			Develop Firm Policies
			Disclose Trade Allocation Procedures
			Establish Systematic Account Review
			Disclose Levels of Service
		Standard III(B): Application of the Standard
			Example 1 (Selective Disclosure):
			Example 2 (Fair Dealing between Funds):
			Example 3 (Fair Dealing and IPO Distribution):
			Example 4 (Fair Dealing and Transaction Allocation):
			Example 5 (Selective Disclosure):
			Example 6 (Additional Services for Select Clients):
			Example 7 (Minimum Lot Allocations):
			Example 8 (Excessive Trading):
			Example 9 (Limited Social Media Disclosures):
			Example 10 (Fair Dealing between Clients):
		Standard III(C): Duties to Clients – Suitability
			Guidance
		Standard III(C): Recommended Procedures
			Investment Policy Statement
			Regular Updates
			Suitability Test Policies
		Standard III(C): Application of the Standard
			Example 1 (Investment Suitability—Risk Profile):
			Example 2 (Investment Suitability—Entire Portfolio):
			Example 3 (IPS Updating):
			Example 4 (Following an Investment Mandate):
			Example 5 (IPS Requirements and Limitations):
			Example 6 (Submanager and IPS Reviews):
			Example 7 (Investment Suitability—Risk Profile):
			Example 8 (Investment Suitability):
		Standard III(D): Duties to Clients - Performance Presentation
			Guidance
		Standard III(D): Recommended Procedures
			Apply the GIPS Standards
			Compliance without Applying GIPS Standards
		Standard III(D): Application of the Standard
			Example 1 (Performance Calculation and Length of Time):
			Example 2 (Performance Calculation and Asset Weighting):
			Example 3 (Performance Presentation and Prior Fund/Employer):
			Example 4 (Performance Presentation and Simulated Results):
			Example 5 (Performance Calculation and Selected Accounts Only):
			Example 6 (Performance Attribution Changes):
			Example 7 (Performance Calculation Methodology Disclosure):
			Example 8 (Performance Calculation Methodology Disclosure):
		Standard III(E): Duties to Clients - Preservation of Confidentiality
			Guidance
		Standard III(E): Recommended Procedures
			Communicating with Clients
		Standard III(E): Application of the Standard
			Example 1 (Possessing Confidential Information):
			Example 2 (Disclosing Confidential Information):
			Example 3 (Disclosing Possible Illegal Activity):
			Example 4 (Disclosing Possible Illegal Activity):
			Example 5 (Accidental Disclosure of Confidential Information):
		Standard IV(A): Duties to Employers – Loyalty
			Standard IV(A) Loyalty
			Guidance
		Standard IV(A): Recommended Procedures
			Competition Policy
			Termination Policy
			Incident-Reporting Procedures
			Employee Classification
		Standard IV(A): Application of the Standard
			Example 1 (Soliciting Former Clients):
			Example 2 (Former Employer’s Documents and Files):
			Example 3 (Addressing Rumors):
			Example 4 (Ownership of Completed Prior Work):
			Example 5 (Ownership of Completed Prior Work):
			Example 6 (Soliciting Former Clients):
			Example 7 (Starting a New Firm):
			Example 8 (Competing with Current Employer):
			Example 9 (Externally Compensated Assignments):
			Example 10 (Soliciting Former Clients):
			Example 11 (Whistleblowing Actions):
			Example 12 (Soliciting Former Clients):
			Example 13 (Notification of Code and Standards):
			Example 14 (Leaving an Employer):
			Example 15 (Confidential Firm Information):
		Standard IV(B): Duties to Employers - Additional Compensation Arrangements
			Guidance
		Standard IV(B): Recommended Procedures
		Standard IV(B): Application of the Standard
			Example 1 (Notification of Client Bonus Compensation):
			Example 2 (Notification of Outside Compensation):
			Example 3 (Prior Approval for Outside Compensation):
		Standard IV(C): Duties to Employers - Responsibilities of Supervisors
			Guidance
		Standard IV(C): Recommended Procedures
			Codes of Ethics or Compliance Procedures
			Adequate Compliance Procedures
			Implementation of Compliance Education and Training
			Establish an Appropriate Incentive Structure
		Standard IV(C): Application of the Standard
			Example 1 (Supervising Research Activities):
			Example 2 (Supervising Research Activities):
			Example 3 (Supervising Trading Activities):
			Example 4 (Supervising Trading Activities and Record Keeping):
			Example 5 (Accepting Responsibility):
			Example 6 (Inadequate Procedures):
			Example 7 (Inadequate Supervision):
			Example 8 (Supervising Research Activities):
			Example 9 (Supervising Research Activities):
		Standard V(A): Investment Analysis, Recommendations, and Actions - Diligence and Reasonable Basis
			Standard V(A) Diligence and Reasonable Basis
			Guidance
		Standard V(A): Recommended Procedures
		Standard V(A): Application of the Standard
			Example 1 (Sufficient Due Diligence):
			Example 2 (Sufficient Scenario Testing):
			Example 3 (Developing a Reasonable Basis):
			Example 4 (Timely Client Updates):
			Example 5 (Group Research Opinions):
			Example 6 (Reliance on Third-Party Research):
			Example 7 (Due Diligence in Submanager Selection):
			Example 8 (Sufficient Due Diligence):
			Example 9 (Sufficient Due Diligence):
			Example 10 (Sufficient Due Diligence):
			Example 11 (Use of Quantitatively Oriented Models):
			Example 12 (Successful Due Diligence/Failed Investment):
			Example 13 (Quantitative Model Diligence):
			Example 14 (Selecting a Service Provider):
			Example 15 (Subadviser Selection):
			Example 16 (Manager Selection):
			Example 17 (Technical Model Requirements):
		Standard V(B): Investment Analysis, Recommendations, and Actions - Communication with Clients and Prospective Clients
			Guidance
		Standard V(B): Recommended Procedures
		Standard V(B): Application of the Standard
			Example 1 (Sufficient Disclosure of Investment System):
			Example 2 (Providing Opinions as Facts):
			Example 3 (Proper Description of a Security):
			Example 4 (Notification of Fund Mandate Change):
			Example 5 (Notification of Fund Mandate Change):
			Example 6 (Notification of Changes to the Investment Process):
			Example 7 (Notification of Changes to the Investment Process):
			Example 8 (Notification of Changes to the Investment Process):
			Example 9 (Sufficient Disclosure of Investment System):
			Example 10 (Notification of Changes to the Investment Process):
			Example 11 (Notification of Errors):
			Example 12 (Notification of Risks and Limitations):
			Example 13 (Notification of Risks and Limitations):
			Example 14 (Notification of Risks and Limitations):
		Standard V(C): Investment Analysis, Recommendations, and Actions - Record Retention
			Guidance
		Standard V(C): Recommended Procedures
		Standard V(C): Application of the Standard
			Example 1 (Record Retention and IPS Objectives and Recommendations):
			Example 2 (Record Retention and Research Process):
			Example 3 (Records as Firm, Not Employee, Property):
		Standard VI(A): Conflicts of Interest - Disclosure of Conflicts
			Standard VI(A) Disclosure of Conflicts
			Guidance
		Standard VI(A): Recommended Procedures
		Standard VI(A): Application of the Standard
			Example 1 (Conflict of Interest and Business Relationships):
			Example 2 (Conflict of Interest and Business Stock Ownership):
			Example 3 (Conflict of Interest and Personal Stock Ownership):
			Example 4 (Conflict of Interest and Personal Stock Ownership):
			Example 5 (Conflict of Interest and Compensation Arrangements):
			Example 6 (Conflict of Interest, Options, and Compensation Arrangements):
			Example 7 (Conflict of Interest and Compensation Arrangements):
			Example 8 (Conflict of Interest and Directorship):
			Example 9 (Conflict of Interest and Personal Trading):
			Example 10 (Conflict of Interest and Requested Favors):
			Example 11 (Conflict of Interest and Business Relationships):
			Example 12 (Disclosure of Conflicts to Employers):
		Standard VI(B): Conflicts of Interest - Priority of Transactions
			Guidance
		Standard VI(B): Recommended Procedures
		Standard VI(B): Application of the Standard
			Example 1 (Personal Trading):
			Example 2 (Trading for Family Member Account):
			Example 3 (Family Accounts as Equals):
			Example 4 (Personal Trading and Disclosure):
			Example 5 (Trading Prior to Report Dissemination):
		Standard VI(C): Conflicts of Interest - Referral Fees
			Guidance
		Standard VI(C): Recommended Procedures
		Standard VI(C): Application of the Standard
			Example 1 (Disclosure of Referral Arrangements and Outside Parties):
			Example 2 (Disclosure of Interdepartmental Referral Arrangements):
			Example 3 (Disclosure of Referral Arrangements and Informing Firm):
			Example 4 (Disclosure of Referral Arrangements and Outside Organizations):
			Example 5 (Disclosure of Referral Arrangements and Outside Parties):
		Standard VII(A): Responsibilities as a CFA Institute Member or CFA Candidate - Conduct as Participants in CFA Institute Programs
			Standard VII(A) Conduct as Participants in CFA Institute Programs
			Guidance
		Standard VII(A): Application of the Standard
			Example 1 (Sharing Exam Questions):
			Example 2 (Bringing Written Material into Exam Room):
			Example 3 (Writing after Exam Period End):
			Example 4 (Sharing Exam Content):
			Example 5 (Sharing Exam Content):
			Example 6 (Sharing Exam Content):
			Example 7 (Discussion of Exam Grading Guidelines and Results):
			Example 8 (Compromising CFA Institute Integrity as a Volunteer):
			Example 9 (Compromising CFA Institute Integrity as a Volunteer):
		Standard VII(B): Responsibilities as a CFA Institute Member or CFA Candidate - Reference to CFA Institute, the CFA Designation, and the CFA Program
			Guidance
		Standard VII(B): Recommended Procedures
		Standard VII(B): Application of the Standard
			Example 1 (Passing Exams in Consecutive Years):
			Example 2 (Right to Use CFA Designation):
			Example 3 (“Retired” CFA Institute Membership Status):
			Example 4 (Stating Facts about CFA Designation and Program):
			Example 5 (Order of Professional and Academic Designations):
			Example 6 (Use of Fictitious Name):
		Practice Problems
		Solutions
	Learning Module 4	Introduction to the Global Investment Performance Standards (GIPS)
		Introduction
		Why Were the GIPS Standards Created, Who Can Claim Compliance, & Who Benefits from Compliance?
			Who Can Claim Compliance?
			Who Benefits from Compliance?
		Composites
		Fundamentals of Compliance
		Verification
		Practice Problems
		Solutions
	Learning Module 5	Ethics Application
		Introduction
		Professionalism
			Knowledge of the Law
			Independence and Objectivity
			Misrepresentation
			Misconduct
		Integrity of Capital Markets
			Material Nonpublic Information
			Market Manipulation
		Duties to Clients
			Loyalty, Prudence, and Care
			Fair Dealing
			Suitability
			Performance Presentation
			Preservation of Confidentiality
		Duties to Employers
			Loyalty
			Additional Compensation Arrangements
			Responsibilities of Supervisors
		Investment Analysis, Recommendations, and Actions
			Diligence and Reasonable Basis
			Communication with Clients and Prospective Clients
			Record Retention
		Conflicts of Interest
			Disclosure of Conflicts
			Priority of Transactions
			Referral Fees
		Responsibilities as a CFA Institute Member or CFA Candidate
			Conduct as Participants in CFA Institute Programs
			Reference to CFA Institute, the CFA Designation, and the CFA Program
	Glossary