Ethics and Compliance
Ethical foundations
Ethics is more than legality: conduct can be legal yet unethical. Know the standard pillars - integrity, objectivity, competence, confidentiality, fairness and professionalism - and the duty to place client interests above personal or firm interests. Understand fiduciary duty, conflicts of interest, and the requirement to disclose, manage or avoid conflicts.
Compliance in practice
Compliance programmes include policies, training, monitoring, surveillance and escalation. Know the handling of inside information (information barriers, restricted lists, watch lists), personal account dealing rules, gifts and entertainment limits, and whistleblowing protections. Understand market abuse surveillance and the role of the compliance officer as an independent function.
Client relationships
Know suitability (recommendations must match the client's objectives, risk tolerance and circumstances), know-your-client, fair dealing, best execution and clear disclosure of fees and risks. Understand the treatment of vulnerable clients and the duty of confidentiality, including when disclosure is permitted or required.
Traps
Questions often present a scenario where an action is legal but breaches a code of ethics - the ethical answer is usually the more conservative one. Another trap: confidentiality does not shield information that must be reported, such as suspected money laundering. Beware of rationalising misconduct as "standard practice".
Worked example
A client offers an analyst a luxury holiday after a favourable report. Accepting may breach gift limits and compromise objectivity; the correct response is to decline or disclose under firm policy. The legal status of the gift is irrelevant - the ethical test is independence and appearance of impropriety.
Rule of thumb
When in doubt, ask: would I be comfortable if this decision were public, and does it put the client first?
Investment Analysis and Client Advisory
Analysis toolkit
Top-down analysis moves from economy to industry to company; bottom-up starts with the company. Know fundamental analysis (financial statements, ratios, competitive position) and technical analysis (price and volume patterns). Key ratios: liquidity (current, quick), leverage (debt/equity), profitability (net margin, ROE) and valuation (P/E, price-to-book, dividend yield).
Economic and industry context
Understand how interest rates, inflation, growth and currency moves affect asset prices. Know industry life-cycle stages and Porter's five forces as a framework for competitive intensity. Recognise that cyclical and defensive sectors respond differently to the economic cycle.
Client advisory process
Establish objectives and constraints (the IPS), assess risk tolerance (capacity versus willingness), construct an allocation, implement, monitor and rebalance. Know risk profiling, time horizon, liquidity needs, tax position and legal constraints. Understand diversification and the risk-return trade-off, and the difference between risk capacity (ability) and risk tolerance (attitude).
Traps
Questions confuse risk capacity with risk tolerance, or assume a high-return portfolio suits every long-horizon client. Another trap: using a single ratio as conclusive evidence. Watch for recommendations that ignore stated constraints such as liquidity needs.
Worked example
A client needs 100,000 in two years for a house deposit and has 120,000 invested. Despite a long-term growth preference, the short horizon and certain cash need mean the deposit should sit in low-volatility, liquid assets; equity exposure risks a shortfall at the worst moment. Capacity, not attitude, drives the recommendation.
Rule of thumb
Match the portfolio to the goal's horizon and certainty of need before chasing returns.