5.2 Core Principle 1: Honesty and Integrity

The Required Conduct

Under Core Principle 1 a Distributor and Consultant must at all times:

1. act honestly and with integrity;
2. act in the best interest of investors;
3. deal with investors in good faith and ensure fair treatment; and
4. uphold and protect the reputation of the industry.

The study guide sums it up: Distributors and Consultants must put the client's interests ahead of their own.

The Prohibited Conduct

The Code's Chapter 4 lists conduct that breaches this principle (the list is not exhaustive).

Dishonesty with money and documents

Misrepresentation

The Code prohibits misrepresenting or making false or exaggerated statements about schemes, including:

1. the characteristics of schemes;
2. their past or present performance;
3. names or advertising expressions likely to mislead investors;
4. outdated facts or information;
5. disclosing only favourable features; and
6. comparing schemes using unrelated characteristics.

It also prohibits making false statements or spreading false information about schemes, the SC, FIMM, the industry, or other Distributors or Consultants.

Unauthorised titles

A Distributor or Consultant must not use, adopt or display the designation "financial planner", "financial advisor", "investment advisor" or "investment consultant" unless authorised by the relevant regulator or professional body. (Chapter 6 explains when someone may lawfully call themselves a financial planner.)

Dealing in the wrong products

Distributors and Consultants must not deal in, introduce, promote, market or distribute, or be involved in any way with:

• schemes or products not authorised or recognised under securities laws;
• schemes or products they are not licensed or registered to market; or
• schemes or products listed on an authority's alert list (such as the SC's Investor Alert List).

Applying the Principle

Why Honesty Is Tested So Heavily

Misrepresentation and misappropriation are among the most damaging misconduct for investors and for the industry. FIMM's practice questions often describe a scenario and ask which principle applies. Remember:

• Lies, forgery, falsification and misrepresentation → Honesty and integrity.
• Omitting a material fact when explaining a scheme → Disclosure of information (Core Principle 4), as FIMM's own practice question confirms.
• Switching a client to earn commission → Avoidance of conflict of interest (Core Principle 3).

Linking to the Study Guide's Duty of Care

The study guide's chapter on regulation says Consultants owe investors a duty of care: act with honesty, integrity and dignity; treat investors with respect and disclose all pertinent information; and not misrepresent the scheme, its funds or past performance. Core Principle 1 is the ethical foundation of that duty.

Protecting the Industry's Reputation in Practice

The fourth duty, upholding and protecting the reputation of the industry, reaches beyond individual sales:

• Check before you promote. Before introducing any product or "investment opportunity" to clients, confirm it is authorised in Malaysia and not on the SC's Investor Alert List. Involvement "in any way" with an unauthorised scheme is prohibited, even without selling it.
• No rumours. Spreading false information about another Distributor, a competing Consultant, FIMM or the SC damages trust in the whole industry and is itself prohibited.
• Honest marketing materials. A fund name, slogan or chart that is likely to mislead investors breaches the principle even if every number is technically correct.

A Short Case

Encik Faiz, a Consultant, is two sales short of his monthly target. A client asks whether a new equity fund is "safe like a fixed deposit". Faiz is tempted to say "almost no risk – it has never lost money". That statement would be false and exaggerated about the fund's characteristics and performance, and would put his interest ahead of the client's. The honest answer explains that the fund's value can fall, that it is not a deposit and not guaranteed, and that the right choice depends on the client's risk profile.