Guidance for Standard IV: Duties to Employers: formula sheet

Key formulas

Core duty (IV(A))

Act for the employer's benefit in employment matters; do not deprive it of your skills, divulge confidential information, or cause it harm

Applies to matters related to employment. It is not a duty to give up all outside activity.

Independent practice

Independent practice that could result in compensation or other benefit in competition with the employer needs prior written consent

The Standard requires written consent for competing independent practice. For any outside activity, never use the employer's time, clients or resources.

Leaving an employer

Plan and prepare to leave: allowed. Take client lists or records, or solicit while employed: not allowed

After leaving you may compete, unless a valid non-compete agreement applies. Do not use confidential information.

Whistleblowing exception

Violating confidentiality may be appropriate to protect clients or market integrity, not for personal gain

Employer loyalty does not override duties to clients and markets.

Nature of employment

An employee generally owes a fuller duty of loyalty. For an independent contractor, the agreement shapes the degree of obligation, but duties to clients and the Code and Standards still apply.

The nature of the relationship affects the degree of loyalty owed, but never removes duties to clients or the Code and Standards.

Standard IV(B) rule

Extra compensation that competes with or may conflict with the employer's interest → obtain written consent from all parties involved

No calculation is needed. Without written consent from all parties, accepting it is a violation.

Test for a violation

Extra benefit + possible conflict with employer + no written consent = violation

If any one element is missing, such as no possible conflict, the standard may not be triggered.

Form of consent

Written (not verbal) + from all parties involved + specific about the arrangement

An email or letter can serve as written consent. A casual verbal OK does not.

Standard IV(C) (official wording)

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.

The test is reasonable efforts, not guaranteed prevention.

Elements of an adequate compliance system

Code of ethics + clear authority and reporting lines + training + monitoring and reporting channels + investigation and discipline

Must be communicated to all staff and suited to the firm's size and business.

No adequate system in place

Decline in writing to accept supervisory responsibility until adequate procedures are adopted

Applies when the supervisor cannot supervise effectively because procedures are missing.

On discovering a violation

Investigate promptly + stop the conduct + increase monitoring + document

Do not rely only on the employee's assurance.

Standard VI(A) core duty

Full and fair disclosure of all matters that could reasonably be expected to impair independence and objectivity or interfere with duties

Disclosure goes to clients, prospective clients and the employer.

Quality of disclosure

Prominent + plain language + communicates information effectively

A vague or buried disclosure does not satisfy the standard.

Test for what to disclose

Could the matter reasonably be expected to impair independence, objectivity or duties?

If yes, disclose. If unsure, disclose.

IV(A) versus VI(A)

IV(A): do not harm or compete with the employer. VI(A): disclose conflicts to all affected parties.

Same facts can trigger both standards.

Quick revision

• IV(A): act for your employer's benefit and do not cause it harm, but never in a way that harms client interests or market integrity.
• IV(A): you may prepare to compete before leaving, but you must not take client lists or records, or solicit clients while still employed.
• IV(A): before independent practice or outside work that may compete with your employer or create a conflict, give the employer written notice and obtain its consent.
• IV(A): follow your firm's policies and escalate violations internally first; whistleblowing outside the firm can be justified when it protects clients or market integrity.
• IV(B): you must not accept compensation or benefits from a source other than your employer that might create a conflict of interest with your employer's interests unless you get written consent from all parties involved.
• IV(B): the written disclosure to the employer should describe the nature and terms of the arrangement, such as the compensation and its duration.
• IV(C): supervisors must make reasonable efforts to prevent and detect violations by those under their supervision.
• IV(C): adopt compliance procedures and ensure they are communicated and enforced; a supervisor who delegates is still responsible.
• IV(C): if you find a violation, act promptly and investigate rather than ignore it.
• VI(A): disclose conflicts that could impair independence and objectivity or interfere with duties, and make the disclosure prominent and plain.
• If the wording says written consent or full disclosure, check the case for it. Missing consent usually points to a violation.
• Pick the answer that satisfies the Standard and protects clients, not the one that is merely legal or profitable.

Common mistakes

• Thinking that a member who plans to leave is violating loyalty Fix: Preparing to leave, such as setting up a new firm, is allowed. Soliciting clients or taking records while still employed is not.
• Believing a non-compete agreement is required to prevent client solicitation before leaving Fix: While employed, the duty of loyalty applies even without an agreement. After leaving, the agreement matters.
• Treating verbal approval from the manager as enough. Fix: Remember the word written in the standard. Only written consent from all parties involved satisfies IV(B).
• Confusing IV(B) with IV(A) Loyalty. Fix: Link IV(B) to extra pay or gifts that create a conflict. Link IV(A) to the duty not to deprive the employer of your skills and abilities, such as misusing confidential information or employer property. Preparing to compete after leaving is allowed if no employer resources are used.
• Assuming a subordinate's violation means the supervisor violated IV(C). Fix: Ask whether the supervisor made reasonable efforts and had adequate procedures.
• Assuming delegation removes the supervisor's responsibility. Fix: A supervisor may delegate tasks but remains responsible for oversight and follow-up.
• Thinking VI(A) only covers disclosure to employers. Fix: Remember it covers clients, prospective clients and the employer.
• Treating IV(A) and VI(A) as the same standard. Fix: IV(A) is loyalty: do not harm the employer. VI(A) is disclosure of conflicts to affected parties.

Exam tips

• Look for timing words such as "while still employed" and "after leaving". They usually decide the answer.
• Items that mention client lists, files or records copied before departure are usually violations.
• When whistleblowing appears, check the motive. Protecting clients or markets is fine. Personal gain is not.
• Do not choose options that treat the employer's instruction as the final authority. The Code and Standards come first.
• With no penalty for wrong answers, always answer. Eliminate the option that breaks a clear rule, then choose between the other two.
• Look for the key words gift, bonus, extra compensation or side payment, then check for written consent.
• Eliminate any option that relies on verbal approval, small size, or disclosure after the fact.
• When IV(A) and IV(B) both appear as options, pick IV(B) if the facts are about extra pay or benefits creating a conflict.