Reading 3.6 Standard 6: Conflicts of Interest Flashcards
Describe the efforts that must be taken to disclose conflicts of interest to clients.
The most obvious conflicts of interest are relationships between an issuer and the member, the candidate, or his or her firm.
Disclosures should be made to clients regarding fee arrangements, subadvisory agreements, or other situations involving nonstandard fee structures. Equally important is the disclosure of arrangements in which the firm benefits directly from investment recommendations.
List the Guidance of the Conflicts of Interest standard as it applies to Priority of Transactions.
This standard is designed to prevent any potential conflict of interest or the appearance of a conflict of interest with respect to personal transactions.
Client interests have priority. Client transactions must take precedence over transactions made on behalf of the member’s or candidate’s firm or personal transactions.
Describe the Guidance of the Conflicts of Interest standard as it applies to Disclosure of Conflicts.
Best practice is to avoid actual conflicts or the appearance of conflicts of interest when possible.
When conflicts cannot be reasonably avoided, clear and complete disclosure of their existence is necessary.
In making and updating disclosures of conflicts of interest, err on the side of caution to ensure that conflicts are effectively communicated.
List the Guidance of the Conflicts of Interest standard as it applies to Referral Fees.
Inform employer, clients, and prospective clients of any benefit received for referrals of customers and clients.
Disclose when they pay a fee or provide compensation to others who have referred prospective clients.
Appropriate disclosure means that the client or prospective client must be advised before entry into any formal agreement for services, of any benefit given or received for the recommendation of any services provided by the member or candidate.
Identify the compliance procedures firms can adopt to address conflict areas created by personal investing.
Limited participation in equity IPOs.
Restrictions on private placements.
Establish blackout/restricted periods.
Reporting requirements.
Preclearance procedures.
Disclosure of policies to investors.
Describe the efforts that must be taken to disclose conflicts of interest to employers.
Must give their employers enough information to assess the impact of the conflict.
Must take reasonable steps to avoid conflicts and, if they occur inadvertently, must report them promptly so that the employer and the member or candidate can resolve them as quickly and effectively as possible.
Any potential conflict situation that could prevent clear judgment about or full commitment to the execution of duties to the employer should be reported to the employer and promptly resolved.
List the 3 conditions under which individual managers, advisers, or mutual fund employees can make money from personal investments.
The client is not disadvantaged by the trade.
The investment professional does not benefit personally from trades undertaken for clients.
The investment professional complies with applicable regulatory requirements.
