19.1 The IWI Code of Professional Responsibility: The Nine Principles

19.1 The IWI Code of Professional Responsibility: The Nine Principles

Why This Section Carries Disproportionate Exam Weight

The IWI Code of Professional Responsibility is its own knowledge section in the CIMA Detailed Content Outline, and the outline is explicit about scope: the Preamble, the principles set forth in the Code, and the concepts expanded upon in the Guidance for the Code are all subject to test. Exam items are typically case scenarios in which a candidate must identify which principle is implicated and what action it requires.

The single most common preparation error is learning a paraphrased or condensed list. The Code contains nine principles. IWI publishes them under the heading "Know the Code: 9 Principles for Professional Conduct," and the Guidance document addresses each of the nine in turn as "Code Principle 1" through "Code Principle 9." Any summary offering four, five, or six merged principles is a third-party abridgement and will cause errors on items that turn on a principle the abridgement dropped.

1. The Preamble: Four Values

The Code derives from a Preamble setting out core values. The Preamble states that it is not intended to be specifically enforced as part of the Code and its Guidance — it is aspirational, and the enforceable obligations are the nine principles.

2. The Nine Principles

Institute members, candidates, and certificants are required to adhere to the following.

3. What the Guidance Adds to Each Principle

The Guidance is where exam scenarios are actually decided. The following are the interpretive points most likely to be tested.

Principle 1 — Best interest. This is described by IWI as the cardinal principle. The critical nuance is that acting in a client's best interest is judged in light of the professional's legal, regulatory, and firm requirements. If a certificant is held to a suitability standard for a particular client, acting in that client's best interest means complying with the suitability standard; if the certificant has a fiduciary obligation, it means complying with that fiduciary obligation. The Code does not itself impose a uniform fiduciary standard on every engagement — a distinction candidates frequently get wrong. Where the client is someone other than an asset owner, the professional satisfies Principle 1 by acting honestly, competently, ethically, objectively, and candidly. Diminished capacity situations also engage Principles 5 and 6.

Principle 2 — Services and compensation. Covers the scope and cost of services and compensation received. Disclosure may be oral or written; oral disclosures should, as best practice, be confirmed in writing in a timely manner. Disclosures should be updated whenever changes are proposed.

Principle 3 — Conflicts. The most heavily tested principle, because it imposes two separate duties. First, disclose actual, potential, and perceived conflicts and relevant direct or indirect financial relationships. A "direct" financial relationship is paid for by the client; an "indirect" one compensates the professional but is not paid directly by the client. "Relevant" means material to the client's decision. Second — and this is the part abridged summaries omit — the professional must take appropriate action to resolve or manage the conflict. The professional should seek to avoid or prevent conflicts where possible, and must avoid them if legal, regulatory, or firm requirements so require. Where a conflict is unavoidable, the professional shall notify affected parties and obtain informed written consent, manage the conflict in the client's best interest, and take other mitigating steps such as monitoring, setting boundaries, or self-disqualification. The Guidance's worked example is a dual fee structure combining an asset-based advisory fee with commissions.

Principle 4 — Informed decisions. "Provide" means to deliver, discuss, or make information available irrespective of whether the client specifically requested it. Information must be something the client can reasonably be expected to understand, and must be accurate, objective, unbiased, and relevant. A professional may rely on other sources but is expected to assess the reliability of the source and attribute it appropriately. Recommendations must rest on a reasonable and adequate basis supported by research.

Principle 5 — Responsiveness. "Respond" includes refusing to provide information or to follow an instruction for good reason — but the refusal and its rationale must be communicated to the client. It may be appropriate to decline where following the instruction would violate law, regulation, conflict rules, firm policy, or the Code itself. "Promptly" is circumstance-dependent rather than a fixed interval.

Principle 6 — Confidentiality. "Client information" is any non-public information concerning the client, including the client's identity, regardless of how it was obtained — from the client, a third party, or research. Information may not be shared with non-clients even where they are family members, spouses, partners, lawyers, or accountants, unless the client has specifically authorized disclosure to that person. The duty survives a change of employment, so disclosing client information after moving firms can violate Principle 6. The Guidance also directs professionals who come into possession of material non-public information to consult supervisors, compliance, or counsel and to refrain from taking or inducing investment action on it.

Principle 7 — Competence. Requires truthful representation of competency, maintenance and development of capabilities, and recommending other professionals when appropriate. It includes a duty to understand the products and services offered and to perform reasonable due diligence on them. Where a client requests something beyond the professional's competence, the professional must inform the client and either refer them elsewhere or decline the assignment.

Principle 8 — Legal and regulatory compliance. Applies to the practice of the profession and is not restricted to services for which payment is received. The professional is responsible for their own conduct whether or not they relied on the advice of others. Professionals must not knowingly participate in a violation and must disassociate from one — by identifying it, ceasing the activity, raising it with compliance, and in extraordinary circumstances resigning. Those acting in a supervisory capacity must make reasonable efforts to detect and prevent violations by those they supervise, whether or not those supervised are IWI members or certificants, and a supervisor who is also the principal on a client relationship cannot eliminate personal culpability by delegating.

Principle 9 — Ethical conduct. Requires more than technical compliance with rules. Examples of unethical behavior include acts resulting in conviction of a felony, conviction of a misdemeanor involving moral turpitude (lying, cheating, stealing) or violence, conduct damaging to the public, and conduct compromising the integrity of the Institute, its marks, or the profession.

4. The Glossary Definition of "Client"

The Code's glossary is testable and produces a result candidates often miss. The meaning of "client" depends on the professional's role:

• Where the professional advises pension funds, endowments, families, individuals, or other asset owners, those persons are the client.
• Where the professional provides investment-related information, products, or services to an intermediary who is not an asset owner, the intermediary is the client. A wholesaler's client is the advisor, not the advisor's underlying investor.

The temporal scope also varies by principle:

5. Applying the Code

The current Code is effective May 2016, approved by the Certification Commission and Board of Directors in 2015. Certificants must sign an agreement to adhere to the Code and complete a disclosure questionnaire at each renewal, and must complete 40 hours of continuing education every two years, including 2 hours of ethics and 1 hour of tax and regulations.