Skip to content

CFA Level II · CFA Level II Exam

Guidance for Standard IV: Duties to Employers

Standard IV sets out what you owe your employer under the CFA Institute Code and Standards: loyalty (IV(A)), disclosure of additional compensation (IV(B)), and, for managers, responsible supervision (IV(C)). At Level II you read an item set vignette, spot the facts that trigger a Standard, name it, and pick the compliant action.

What this chapter covers

Standard IV covers your duties to the firm you work for. It has three parts. IV(A) Loyalty says you must act for the benefit of your employer and not deprive it of your skills and abilities. IV(B) Additional Compensation Arrangements says you must not accept gifts, benefits, compensation or consideration that competes with, or might reasonably be expected to create a conflict of interest with, your employer's interests, unless you obtain written consent from all parties involved. In practice, your employer's written consent is the key point to look for. IV(C) Responsibilities of Supervisors says you must make reasonable efforts to detect and prevent violations of laws, rules, regulations and the Code and Standards by anyone under your supervision.

The chapter also deals with practical situations: leaving an employer, soliciting clients, taking firm materials, independent practice, and disclosing conflicts. The guidance is detailed here because these are the points where candidates are tested. Your own duty to your employer never overrides your duty to clients and the integrity of markets.

This chapter links to the rest of the Ethics section. Loyalty to employers sits below duties to clients (Standard III) and the integrity of capital markets (Standard II). Supervisor duties connect to Standard I(A) on knowledge of the law. Conflict disclosure links to Standard VI. At Level II the Ethics questions arrive as item sets, so you must apply the Standards to a longer vignette with several people and several possible violations.

Ethical and Professional Standards carries a weight of 10-15% on the Level II exam, and Standard IV is one of the seven Standards you must apply precisely. Its questions reward careful reading, not memorisation of long lists. Once you know the exact conditions, such as written consent for outside compensation or what counts as reasonable supervision, you can answer quickly and accurately. That makes it a dependable source of points, and the same habits help you across every other Standard.

Guidance for Standard IV: Duties to Employers: topics in the order to study them

  1. 1Standard IV(A) LoyaltyIt is the base duty of the chapter, and every later topic is an application or limit of it.
  2. 2Leaving an Employer and Soliciting ClientsThis is the most tested application of loyalty, so learn it straight after the Standard itself.
  3. 3Standard IV(B) Additional Compensation ArrangementsA separate, narrower rule built on the idea that outside pay can create conflicts with your employer.
  4. 4Standard IV(C) Responsibilities of SupervisorsIt applies to a different role, the manager, so study it once the employee duties are clear.
  5. 5Disclosure of Conflicts to EmployersIt ties IV(A) and IV(B) together and links to Standard VI, so it comes after both.
  6. 6Application Cases for Duties to EmployersCases test everything above, so do them last, when you can name the Standard and the exact condition.

How to prepare Guidance for Standard IV: Duties to Employers

Learn the rule and its exact conditions first, then practise applying it to vignettes until naming the Standard becomes automatic.

  1. Read the text of IV(A), IV(B) and IV(C) once and write each duty in one plain sentence of your own.
  2. For each Standard, list the compliant actions and the violations. Keep the lists short and specific.
  3. Study departing-employee rules separately: what you may do before leaving, what you must not take, and what you may do after leaving.
  4. Note the conditions that matter, such as written consent, the employer's interest, and what makes supervision reasonable.
  5. Work through application cases. For each, underline the facts that trigger a Standard, name it, then choose the action.
  6. Practise in item set format, with four questions per vignette, and check whether you missed a second Standard in the same story.
  7. Revise with a one-page sheet of triggers and required actions a day before the exam.

Common mistakes in Guidance for Standard IV: Duties to Employers

  • Putting the employer's interest above clients or market integrity.

    Fix: Remember the order: markets and clients first, then the employer. Loyalty never requires an unethical act.

  • Treating any preparation to leave as a violation.

    Fix: Separate what is allowed (arranging a new firm, but not using firm time or resources) from what is not (soliciting clients before leaving, taking records).

  • Accepting that verbal approval is enough for extra compensation.

    Fix: IV(B) calls for written consent. Look for that word in the vignette.

  • Thinking a supervisor is safe if they did not know about a violation.

    Fix: Check whether adequate compliance systems existed and whether the supervisor acted when red flags appeared.

  • Naming the wrong Standard when a vignette has several issues.

    Fix: List each person's actions, then match each action to a Standard before you look at the options.

Last-day revision: Guidance for Standard IV: Duties to Employers

  • IV(A): act for your employer's benefit and do not harm it by using your skills against it.
  • Your duty to clients and market integrity comes before your duty to your employer.
  • Independent practice for compensation that might result in a conflict of interest requires prior written consent from the employer, which includes the nature of the services, the expected compensation and the duration.
  • Before leaving, you may prepare to compete, but you must not solicit clients or use firm time and resources to do so.
  • Do not take client records or firm materials when you leave. They belong to the employer.
  • Contacting former clients after you leave is generally acceptable, as long as you did not use confidential records.
  • IV(B): get written consent before accepting compensation or benefits that compete with, or might create a conflict of interest with, your employer's interests. Your employer's written consent is the key point.
  • IV(C): supervisors must make reasonable efforts to prevent and detect violations by people they supervise.
  • A supervisor needs adequate compliance procedures. Having none is a failure in itself.
  • Once you know of a violation, a supervisor must act promptly and investigate, not wait.
  • Disclose conflicts of interest to your employer so it can decide how to handle them.
  • Whistleblowing to protect clients or markets can be consistent with the Standards.

Guidance for Standard IV: Duties to Employers in other exams

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

Guidance for Standard IV: Duties to Employers: frequently asked questions

What are the three parts of Standard IV?

IV(A) is Loyalty, IV(B) is Additional Compensation Arrangements, and IV(C) is Responsibilities of Supervisors. Together they describe what you owe your employer and what managers owe in overseeing staff.

Can I start a competing firm before I leave my employer?

You may make preparations, but you must not use your employer's time, resources or confidential information, and you must not solicit its clients before you leave. Taking client records or firm materials with you would be a violation.

Does Standard IV(B) require written consent?

Yes. You must not accept gifts, benefits, compensation or consideration that competes with, or might reasonably be expected to create a conflict of interest with, your employer's interests, unless you obtain written consent from all parties involved. In vignettes, look first for your employer's written consent.

How is Standard IV tested in the Level II exam?

It appears in Ethics item sets. You read a vignette with several people and actions, then answer four questions about which Standard is violated or what a person should do. Ethics carries a weight of 10-15% in the exam.