Standard IV Flashcards
What is Standard IV?
Duties to Employers
What are the subsections of Standard IV?
There are three subsections:
IV-A: Loyalty
IV-B: Additional Compensation Arrangements
IV-C: Responsibilities of Supervisors
What is IV-A?
“Loyalty”
In matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.
What is the definition of “Practice” as it applies to Standard IV-A?
Any service currently available (for remuneration) at the individual’s firm. Thus, if a CFA member is employed at an investment advisor and is hired to write the ethics section of a CFA Level I study guide, he or she would not be violating Standard IV-A, since his or her employer does not publish CFA study guides
What is the definition of “Undertaking Independent Practice” as it applies to Standard IV-A?
“Actually engaged in competitive business” should be distinguished from “making preparations” to begin independent practice. An individual is free to prepare for a new independent venture, as long as the preparations do not involve any of the activities listed above (and, in particular, don’t actively solicit clients). As noted previously, each circumstance is unique - actions must remain consistent with the duty to be loyal to one’s employer.
How can one comply with IV-A?
How to Comply
- Provide a written statement describing the relationship, the type of service, the expected duration and the expected compensation.
- Do not render services until written consent from employer is received.
- Disclose to clients the identity of one’s employer, clarify that it is an independent arrangement and state the fees that would apply under a similar contract with the employer.
- Do not render services until client reads and understands these disclosures and provides written consent.
What is standard IV-B?
“Additional Compensation Arrangements”
Members and Candidates must not accept gifts, benefits, compensation or consideration that competes with, or might reasonably be expected to create a conflict of interest with, their employer’s interest unless they obtain written consent from all parties involved
What is the definition of “compensation” as it applies to Standard IV-B?
Compensation applies to direct cash payments or bonuses by the clients, as well as indirect compensation provided by third parties. It applies to non-monetary gifts, which includes complementary vacations, memberships to country clubs or health clubs, reimbursement of expenses - anything that is provided to the employee by the client and could create even the appearance of a conflict of interest.
What is the definition of “in writing” as it applies to Standard IV-B?
“In writing” means any form of communication that can be documented. Computer email is regarded as an acceptable format for disclosure, assuming that the direct supervisor has access to and uses email.
How can you comply with IV-B?
- CFA members must report all arrangements for additional monetary compensation to their immediate supervisor, preferably prior to the acceptance of the gift, but immediately thereafter otherwise.
- Written reports should include the specific terms, including the duration of the agreement, specific amounts that could be potentially earned and the nature of non-monetary benefits.
- Review all existing internal compliance procedures relating to compensation from clients and business associates and the potential for conflicts. For example, outside business partners have traditionally paid for travel and other expenses in order to entice an employee to visit, but in recent years many firms have acted to strictly limit this practice. Discuss these issues with the compliance officer and understand what is and is not acceptable for that firm.
- Follow all instructions made as a result of the disclosure. An employer may decide that a compensation arrangement is not appropriate, and if so, an employee is bound to follow that decision.
What is standard IV-C?
Members and Candidates must make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority.
How can you comply with IV-C?
Questions regarding procedure on the exam may test Standard IV-C. If it comes up, remember two simple questions that will help in designing an effective compliance program:
- Which violations in particular are most likely to occur?
- What rules will best uncover and prevent these violations?
Designating a compliance officer, as well as making a compliance manual available to the organization are effective methods in ensuring the organization has a system of checks and balances. There should be an educational program in place, which continually updates personnel on compliance procedures.
