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CFA Level I Exam · Guidance for Standard IV: Duties to Employers

Standard IV(B) Additional Compensation Arrangements for CFA Level 1

Updated 7 October 2026 · Fact-checked

Standard IV(B) says 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 interests, unless they obtain written consent from all parties involved. To solve a question, find the extra benefit and check for written consent.

Understand Standard IV(B) Additional Compensation Arrangements

Your employer pays you to act in its interest. Now imagine a third party also pays you, for example a bonus from a client for strong results or a gift from a broker for sending it trades. That extra payment can pull your loyalty away from your employer. You might favor the person paying you instead.

Standard IV(B) deals with this. The official wording is: 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.

The key word is written. Verbal approval is not enough. You must give your employer written details of the arrangement and obtain written consent from your employer and the other parties involved, such as the client who would pay the bonus, before accepting. The details should be specific about the amount, the nature and the conditions of the payment.

The standard covers extra compensation or benefits from clients or third parties that could create a conflict with the employer's interest, for example a performance bonus from a client. Its scope is wider than cash. Gifts and other benefits count too.

Do not confuse it with Standard IV(A) Loyalty. IV(A) is the duty not to deprive your employer of your skills and abilities, for example by misusing confidential information or employer property. Preparing to compete after you leave is allowed, as long as you do not use employer resources or confidential information. IV(B) is narrower: it is about extra compensation or benefits that create a conflict.

Also note that gifts from clients can raise issues under both Standard I(B) Independence and Objectivity (could the gift affect your independence?) and Standard IV(B) (does it conflict with your employer's interest, and do you have consent?). Standard VI(A) requires disclosure of all matters that could reasonably be expected to impair your independence and objectivity or interfere with your duties. That includes compensation and gifts that could impair independence. IV(B) goes further: it additionally requires written consent from the employer and the other parties involved.

Key formulas to remember

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.

How to solve Standard IV(B) Additional Compensation Arrangements questions

Use the same sequence for every IV(B) question. It keeps you from being distracted by details in the stem.

  1. 1Identify who is offering the extra benefit: a client, a third party, or the employer itself.
  2. 2Ask whether the benefit competes with or could reasonably create a conflict with the employer's interest. Think of performance bonuses, referral gifts, or side payments.
  3. 3Check whether the member gave the employer written details and received written consent from all parties involved.
  4. 4If consent is missing and a conflict is possible, mark it a violation of IV(B).
  5. 5If consent was obtained in writing and the arrangement was disclosed, the member is compliant.
  6. 6Choose the option that matches. Eliminate any option relying on verbal approval or on the benefit being small.

Quickest way: Two-question check: conflict and written consent

When to use it: Use it on any three-option question about gifts, bonuses or side payments with the employer.

  1. Ask: could this benefit conflict with the employer's interest? If no, there is likely no IV(B) issue.
  2. If yes, ask: is there written consent from the employer and the other parties involved? If yes, compliant. If no, violation.
  3. Drop options that say verbal consent, or consent from only one party (for example only the client or only the employer), is enough.
  4. Pick the option that recommends obtaining written consent before accepting.

Common mistakes in Standard IV(B) Additional Compensation Arrangements

  • Treating verbal approval from the manager as enough.

    In daily work, quick verbal OKs feel normal and informal.

    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.

    Both standards are Duties to Employers, and both involve putting the employer's interest first.

    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.

  • Thinking only the employer needs to consent.

    The employer feels like the only party affected.

    Fix: The standard says all parties involved. Obtain written consent from the employer and the other parties involved, such as the client paying the bonus.

  • Assuming a small amount makes it acceptable.

    Students apply a de minimis idea from everyday gift rules.

    Fix: The test is potential conflict with the employer's interest, not the size. Look for the conflict first.

  • Believing disclosure alone is enough.

    Standard VI(A) is about disclosure, so students assume telling someone settles every conflict.

    Fix: VI(A) requires disclosure of conflicts, including compensation and gifts that could impair independence. IV(B) additionally requires written consent from the employer and the other parties involved. Disclosure is not a substitute for consent.

  • Thinking all outside compensation is banned.

    The rule sounds absolute.

    Fix: The ban applies to benefits that compete or may reasonably conflict. With written consent, they are allowed.

Worked examples

Example 1

A portfolio manager at an asset management firm is offered a personal bonus by a client if the client's portfolio beats its benchmark this year. The firm charges a fixed fee and has no such arrangement. The manager accepts without telling the firm. Has the manager violated the Standards, and which one? A. No violation, because the client is paying. B. Yes, Standard IV(B), because there was no written consent from the employer. C. Yes, Standard IV(A), because the bonus is paid in cash.

Show the solution
  1. Identify the extra benefit: a personal bonus from a client, separate from the employer's fee.
  2. Test for conflict: the bonus rewards short-term outperformance. It may push the manager to favor this client over others, which conflicts with the employer's interest.
  3. Check consent: the manager did not inform the employer or get written consent.
  4. Match the standard: extra compensation without written consent is Standard IV(B). Option A ignores the conflict. Option C gives a wrong reason, since the form of payment is irrelevant.

Answer: B

Example 2

An analyst at a bank wants to accept a fee from a third-party research provider for referring the provider to clients. Which action is most consistent with Standard IV(B)? A. Accept the fee after telling a colleague verbally. B. Accept the fee and disclose it in the next annual review. C. Obtain written consent from the employer and the other parties involved before accepting the fee.

Show the solution
  1. The fee is extra compensation that could conflict with the employer's interest.
  2. IV(B) requires written consent from all parties involved, obtained before accepting.
  3. Option A: a verbal mention to a colleague is neither written nor from the employer.
  4. Option B: later disclosure is not consent.
  5. Option C matches the standard.

Answer: C

Exam tips

  • 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.
  • The correct option often recommends obtaining written consent before accepting the benefit.
  • Use the standard's wording: written consent from all parties involved.

Practice questions from Guidance for Standard IV: Duties to Employers

Standard IV(B) Additional Compensation Arrangements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Standard IV(B) Additional Compensation Arrangements: frequently asked questions

What is the difference between Standard IV(A) and IV(B)?

IV(A) Loyalty is the duty not to deprive your employer of your skills and abilities, for example by misusing confidential information or employer property. IV(B) is specific to extra gifts, benefits or compensation that compete with or may conflict with the employer's interest. IV(B) is solved by getting written consent.

How do I disclose additional compensation to my employer under the CFA Standards?

Give the employer clear written details of the arrangement, including the nature, amount and conditions. Then obtain written consent from the employer and the other parties involved, such as the client who would pay, before accepting. Keep a copy of the consent.

Is verbal consent acceptable under Standard IV(B)?

No. The standard requires written consent from all parties involved. Verbal approval can be disputed and does not meet the standard.

Does Standard IV(B) ban all outside compensation?

No. It applies to compensation or benefits that compete with, or might reasonably be expected to create a conflict with, the employer's interest. With written consent from all parties, such arrangements can be accepted.