Use the Competence standard, I(E), in cases
The idea
Standard I(E), added to the Standards of Professional Conduct in the 12th edition, requires members and candidates to act with and maintain the competence necessary to fulfil their professional responsibilities. It makes enforceable the Code's call to maintain and improve professional competence. What competence demands depends on the role and its complexity: an analyst, a portfolio manager and a supervisor need different knowledge, skills and abilities, and a member whose role changes or expands, or who takes on an unfamiliar product, must acquire what the new work requires. The Standard prescribes no particular continuing education programme; employer training, conferences, certifications, self-study and consulting experts are all acceptable routes. Competence is judged by the knowledge and care brought to the work rather than by outcomes, so a loss after thorough research is not a breach, whereas passing a licensing exam without learning its content is not enough.
A practice question
A research analyst asks whether Standard I(E) Competence obliges her to complete a fixed number of continuing education hours each year. What is the correct answer?
- No, it sets no specific programme or hours — correct
- Yes, at least the hours CFA Institute setsWhy not: The Standard deliberately names no programme or quota of hours; it requires the competence itself and leaves the route to the member.
- No, it applies only to portfolio managersWhy not: It applies to every member and candidate, whatever their role; what varies from role to role is the competence required.
Standard I(E) requires members and candidates to act with and maintain the competence their responsibilities demand, but it does not mandate any particular continuing education programme or development plan. Courses, conferences, employer training, certifications and self-study are all acceptable ways to meet it.
A harder one
Clients press a portfolio manager to add a leveraged, daily-reset exchange-traded product she knows only from press coverage. Not wanting to lose them, she buys it for their accounts without learning how the product works. Which Standard is most directly engaged?
- Misconduct, I(D)Why not: Nothing dishonest, fraudulent or deceitful is described; the failing is acting without the knowledge the task required.
- Knowledge of the Law, I(A)Why not: No law or regulation is in question; the problem is that she invested clients' money in a product she did not understand.
- Competence, I(E) — correct
Standard I(E) requires members to act with the competence their responsibilities demand. Investing clients in a product whose nature and risks she does not understand, rather than first learning about it or declining, falls short of that, whatever the clients asked for.
The hardest tier
An analyst recommends a corporate bond after thorough, well-documented research into an issuer with audited accounts and a strong rating. Eighteen months later the issuer defaults when a concealed accounting fraud comes to light, and clients claim the analyst was incompetent. Has Standard I(E) been breached?
- Yes, the default shows the analysis failedWhy not: Competence is judged by the knowledge and care brought to the work, and even thorough research cannot always uncover a fraud that misled the whole market.
- No, a bad outcome alone does not show incompetence — correct
- Yes, unless the analyst held a credit qualificationWhy not: Qualifications do not decide it either way; the question is whether the work reflected the knowledge and diligence the role requires.
Standard I(E) is not a guarantee of results. Competent professionals make recommendations that lose money, and a fraud concealed from the market is not something diligent research is certain to find. Where the research was thorough and appropriate, the default does not by itself show a breach.
In the app: 6 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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