Code of Ethics

Definition

The term code of ethics refers to the standards of conduct expected of persons acting in an advisory capacity.  Under the law, registered financial advisers are required to adopt a code of ethics.

Explanation

The Investment Advisers Act of 1940 requires professionals registered as advisors to adopt a code of ethics.  Enforced by the Securities and Exchange Commission (SEC), the code establishes standards of conduct, and addresses the likelihood that conflicts of interest will arise when advisers are trading their personal account.

For example, professionals holding membership as a Chartered Financial Analyst must abide by a code that includes:

  • Acting with integrity and in an ethical manner with clients.
  • Placing the interest of clients above their own interests.
  • Using reasonable care and judgement when conducting and making investment recommendations.
  • Encouraging others to act in an ethical manner.
  • Promoting and upholding the rules governing capital markets.
  • Maintaining and improving their professional competence.

Related Terms

fiduciary, street name, safekeeping, custodian