CFA Level IEthical and Professional StandardsMedium
An equity analyst employed by a large asset management firm is asked by a corporate client of the firm to serve as a paid keynote speaker at the client's annual investor conference, receiving a $15,000 honorarium directly from the client in addition to her regular salary. She does not inform her employer of this arrangement. Which Standard has she most likely violated?
- AStandard IV(B), Additional Compensation Arrangements, because she failed to obtain written consent from her employer
- BStandard VI(A), Disclosure of Conflicts, because she must disclose the conflict only to the client, not her employer
- CStandard III(B), Fair Dealing, because other analysts were not offered the same speaking opportunity
- DStandard I(B), Independence and Objectivity, because the honorarium compromises her analytical independence
Show answer & explanationAnswer & explanation
Correct answer: A. Standard IV(B), Additional Compensation Arrangements, because she failed to obtain written consent from her employer
Standard IV(B) requires members who wish to accept compensation or other benefits from third parties for services rendered to an employer's clients to obtain written consent from all parties involved, including their employer, before accepting such compensation. Failing to disclose and obtain consent for the honorarium is a violation of this standard.
Why the other options are wrong
- B. Disclosure obligations run to the employer as well, not only to the client.
- C. Fair dealing pertains to treatment of investment clients, not distribution of speaking opportunities among analysts.
- D. There is no indication her research judgment was compromised; this is a compensation disclosure issue.
Additional Compensation Arrangements (IV(B))
Members must obtain written consent from their employer before accepting compensation or benefits from clients or others that could create a conflict with the employer's interest.
- Written consent from employer is required, not just disclosure
- Applies to compensation tied to duties performed for the employer's clients
- Failure to seek consent is a violation even if no actual harm occurs
Memory trick: "Outside pay needs an inside okay."