CFA Level IEthical and Professional StandardsEasy
A wealth manager learns during a client meeting that the client has been evading taxes for several years. The client asks the manager to keep this information confidential. A regulatory investigation later issues a valid subpoena requiring the manager to produce all client records, including this information. Under Standard III(E), Preservation of Confidentiality, what should the manager do?
- AComply with the subpoena, since legal requirements can override the duty of confidentiality
- BComply only with the portions of the subpoena unrelated to the tax evasion allegations
- CNotify the client and allow the client to decide whether records should be released
- DRefuse to comply with the subpoena because client confidentiality is absolute
Show answer & explanationAnswer & explanation
Correct answer: A. Comply with the subpoena, since legal requirements can override the duty of confidentiality
Standard III(E) requires members to maintain confidentiality of client information unless disclosure is required by law, involves illegal activity by the client, or the client permits disclosure. A valid legal subpoena creates a legal requirement to disclose, which overrides the general duty of confidentiality.
Why the other options are wrong
- B. The manager must comply with the full valid legal request, not select portions.
- C. The client does not have discretion to block compliance with a valid legal order.
- D. Confidentiality is not absolute; legal process can compel disclosure.
Preservation of Confidentiality (III(E))
Members must keep client information confidential unless disclosure is required by law, related to illegal client activity, or authorized by the client.
- Legal subpoenas/court orders override confidentiality
- Illegal client activity is an exception to confidentiality
- Confidentiality survives the end of the client relationship
Memory trick: "Law trumps lock — a valid subpoena opens the vault."