GUEST COMMENT: The CFA Institute are deluding themselves if they think ethics can be taught

Another June weekend, another set of CFA exams. The CFA has become the benchmark for professional investors everywhere. Bizarrely, this gold standard of the investment management industry awards 10-15% of its total marks for the dubious category of, 'Ethical and Professional Standards'.

As a market participant, I'm confident in my ability to understand a business well enough to judge whether (and which of) its securities are under- or over-priced. I don't have to cheat the market to outperform. I also understand that we're paid well for good performance and I don't want to damage the integrity of the markets I operate in.

Therefore, it's particularly disappointing to learn that "most traders would steal if it were a sure thing"

Ethics can't be taught. If you're a fully-grown adult and you haven't yet developed a set of morals which allows you to differentiate right from wrong, you won't suddenly learn, from this or any other exam.

The CFA Institute even has a "Code of Ethics & Standards of Professional Conduct," which it asks members and candidates to adhere to. This code is so risibly obvious that it makes one wonder how investors were acting before they committed to it. Were they "Act[ing] with[out] integrity, competence, and respect"? Were they not already "Plac[ing] the integrity of the profession and the interests of clients above their own interests"?

Even worse, a significant part of the ethics marks are to do with the correct use of the terms "CFA" and "CFA Charterholder": when you can use each term, whether it is an academic title (it's not, but until recently the institute thought it was and awarded marks accordingly). This is a routine topic which could crop up in any of the three exams. Since the CFA Institute is a for-profit organisation (lest we ever forget that), and therefore a brand, this smells like blatant self-serving marketing.

Alfred Winslow Jones ran the prototypical hedge fund over half a century ago. He charged 20% performance fees before it was fashionable. He was successful and brokers wanted his commissions, or even better, a job at his fund. He used to ask would-be protégés the following question: "When you go to pee in a restaurant urinal, do you wash your hands before or after you pee?"

When most of them would reply "Afterwards, sir" he would smile and tell them "That's the wrong answer, you're a conventional thinker and not rational."

I'm not sure how he tested women's ethical qualities, or if he did so at all, but I digress.

Perhaps that was a good way to separate lateral thinkers from the rest.

Of course those who stand to benefit from teaching the CFA talk its own book. Hence, the CLO of 7City learning wrote in January that, "the CFA's ethical coverage is very well regarded and reassures regulators and clients that their private banker's moral compass is fully functional."

The only way to ensure that ethical practices are followed is to name and shame the culprits with appropriate and tangible deterrents. In other words, make the risk of getting caught outweigh the benefits. Bankers and traders apply probability weighted outcomes to decisions involving risk, including the risk of liability. It's how their brains are already hard-wired so grasping this idea won't be a quantum leap.

My response to Mr Jones' question would be to do both. It takes longer, but it's better for the investment community in general.

The author is a buyside investor and an ex-investment bank