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

Standard IV Application Cases: Duties to Employers

Updated 7 October 2026 · Fact-checked

Standard IV application cases test whether you can spot which duty to an employer is at stake: loyalty (A), additional compensation (B) or supervision (C). You find the facts in the vignette, name the Standard, check for disclosure and consent, then pick the action that protects the employer and clients.

Understand Application Cases for Duties to Employers

Standard IV has three parts. IV(A) Loyalty: act for the benefit of your employer and do not harm it. Client interests still come first, so loyalty to an employer never excuses harming clients. IV(B) Additional Compensation Arrangements: do not accept gifts, benefits or compensation that could create a conflict with your employer's interests unless you get written consent from your employer and all other parties involved. IV(C) Responsibilities of Supervisors: make reasonable efforts to detect and prevent violations of laws, rules, regulations and the Code and Standards by anyone under your supervision or authority.

In Level II, these appear as short scenarios inside an item set. A typical case describes an analyst who wants to do outside work, a manager whose team member broke a rule, or a person offered a bonus from a third party. You are asked what the person violated, or what they should do.

The tests are mostly about conditions. Independent practice that could result in compensation or other benefit in competition with the employer requires the employer's written consent. Working on your own time does not remove the duty. Using employer resources for private work is a problem. Written consent is required under IV(B) when compensation from others could conflict with the employer's interests, and under IV(A) when independent practice competes with the employer. Where neither condition applies, the Standards do not require consent, although written disclosure is the prudent course. When consent is required, disclosure alone is not enough.

For supervisors, the key idea is that having a compliance system is not enough. A supervisor who delegates must still make reasonable efforts, and a supervisor who discovers a violation must act promptly. If the supervisor lacks the authority to fix the issue, they should decline in writing to accept supervisory responsibility until the necessary authority is granted.

The Handbook also lists recommended procedures: a written code of ethics and compliance manual, clear supervisory duties, and for employers, whistleblowing channels and clear rules on outside activity. Exam answers often follow these recommended procedures.

Key formulas to remember

Standard IV(A) Loyalty: Members and Candidates must act for the benefit of their employer and not deprive it of their skills and abilities, divulge confidential information or otherwise harm it.; Client interests still come first. Independent practice that could result in compensation or other benefit in competition with the employer requires the employer's written consent.
Standard IV(B) Additional Compensation: Do not accept compensation or benefits from others that may conflict with the employer's interests unless you obtain written consent from your employer and all parties involved.; When the compensation may conflict with the employer's interests, consent must be written. Disclosure alone is not enough.
Standard IV(C) Supervisors: Make reasonable efforts to ensure that anyone subject to your supervision or authority complies with laws, rules, regulations and the Code and Standards.; Reasonable efforts means having adequate compliance procedures and acting when a violation is suspected.
Leaving an employer: Act in the employer's interest until the end of employment. Do not take client records or other employer property.; Contacting clients after leaving is generally acceptable if it uses only information from memory and no employer records. Non-public client lists remain the employer's property.

How to solve Application Cases for Duties to Employers questions

Use the same sequence for every Standard IV case in a vignette.

1Read the question first so you know whether you must name the violation, the Standard, or the correct action.
2Find the facts in the vignette: who is the person, what is their role, what did they do, and who knew.
3Decide which part applies: loyalty (outside work, leaving, resources), compensation (third-party payment, bonus, gift), or supervision (a subordinate's conduct).
4Test the conditions: Does the activity compete with the employer? Was written consent obtained? Were employer resources or confidential records used? Did the supervisor act reasonably?
5Check whether client interests are involved. If so, client duties under Standard III can override employer loyalty.
6Choose the option that matches the Handbook: get written consent, stop the conduct, report to compliance, or strengthen procedures.
7Reject options that are partial fixes, such as only verbal approval, only disclosing, or ignoring the issue.

Quickest way: Three-question screen

When to use it: Use when time is short and the three answer options differ mainly in whether a violation occurred.

Ask: is this about my own conduct toward the employer (A), outside pay (B), or someone else's conduct (C)?
Ask: is there written consent, or a reasonable supervisory step already taken?
If consent is missing for conduct that could conflict or compete, or if no reasonable supervisory step was taken, a violation is likely. Pick the option that names the right Standard and the corrective action.
Be wary of options that say no violation occurred just because the activity was after hours or was disclosed verbally.

Common mistakes in Application Cases for Duties to Employers

Treating verbal approval as enough for outside compensation.
Students remember that disclosure is required and stop there.
Fix: When the compensation could conflict with the employer's interests, IV(B) requires written consent from all parties involved.
Assuming off-hours work is always allowed.
Time off the clock feels like personal time.
Fix: Check whether the work competes with the employer, uses its resources, or brings pay that could conflict with its interests. Competing independent practice without written consent breaches IV(A), and conflicting compensation without written consent breaches IV(B).
Putting employer loyalty above clients.
The word loyalty suggests the employer always wins.
Fix: Client interests come first. Loyalty does not require you to act against clients or the law.
Saying a supervisor is safe because a compliance manual exists.
Students equate having a system with reasonable efforts.
Fix: A supervisor must also monitor, respond to red flags and act promptly. Delegating does not remove responsibility.
Assuming a departing employee may take client lists.
Students confuse client relationships with employer records.
Fix: Records and files belong to the employer. Using only memory and non-confidential information after leaving is generally acceptable.
Applying IV(A) to employer instructions that break the law.
Following instructions feels like loyalty.
Fix: Standard I(A) and III duties apply. Do not participate in violations, and dissociate or report as needed.

Worked examples

Example 1

Vignette: Mei Tan is a portfolio manager at Harbor Asset Management, which manages equity funds for institutional clients. She is asked by a small family office to advise on its private equity investments on weekends for a fee. Harbor does not offer private equity services, the family office is not a Harbor client, and she would use only her own time and equipment. She has not told Harbor. Questions: (1) Does the work likely compete with Harbor? (2) Which Standard is relevant? (3) What do the Standards require, and what is the prudent course?

Show the solution

Facts: outside paid advisory work, Harbor does not offer the service, the client is not a Harbor client, no Harbor resources are used, and the employer is unaware.
Competition: because Harbor offers no private equity service, the work likely does not compete with it.
Standard: this is independent practice, which falls under IV(A) Loyalty. Written consent under IV(A) is required only for independent practice that could result in compensation or benefit in competition with the employer.
IV(B) requires written consent for compensation that could create a conflict with the employer's interests. The facts establish no such conflict: no competition, no Harbor clients and no Harbor resources.
So if the work genuinely does not compete, does not use Harbor's resources and creates no conflict, the Standards do not require consent.
The prudent course is still to disclose the work, time and fee to Harbor in writing and obtain written consent. This protects her if Harbor later sees a conflict.

Answer: (1) Probably not, since Harbor has no private equity service. (2) IV(A) Loyalty for the independent practice, with IV(B) relevant only if the fee could conflict with Harbor's interests. (3) On these facts the Standards do not require consent, but the prudent course is to disclose in writing and obtain Harbor's written consent. If the work competed or conflicted, written consent would be required.

Example 2

Vignette: Rahul Mehta heads the research desk at Delta Securities and supervises six analysts. The firm has a written compliance manual. An analyst, Pia Novak, tells Mehta she suspects a colleague traded ahead of a published rating change. Mehta says he will look into it after quarter end and takes no steps. Questions: (1) Did Mehta violate a Standard? (2) What should he have done?

Show the solution

Facts: a supervisor received a credible report of possible front-running and delayed action.
Standard: IV(C) Responsibilities of Supervisors applies.
Having a compliance manual does not satisfy the duty. The supervisor must make reasonable efforts to detect and prevent violations.
Once he learns of a suspected violation he must act promptly, such as reporting to compliance, investigating, and limiting the colleague's activity pending review.
Waiting until quarter end is not prompt.

Answer: (1) Yes, Mehta violated Standard IV(C). (2) He should have promptly escalated to compliance, started an investigation, and placed appropriate restrictions on the colleague while it was reviewed.

Exam tips

Name the part of Standard IV before reading the options. It narrows the answers quickly.
Look for the words written consent. Options lacking it are usually wrong in compensation cases.
In supervisor cases, the right answer usually involves prompt action and escalation, not waiting or relying only on the manual.
If a case mixes employer duties and client interests, resolve it with the client first, then the employer.
Check what the vignette says the employee used: records, time, or resources. These facts often decide the answer.

Application Cases for 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.

Application Cases for Duties to Employers: frequently asked questions

Can I do outside work if it is after hours?

Not automatically. If the work competes with your employer, uses its resources, or involves compensation from others that could conflict with your employer's interests, you need the employer's written consent. Disclosure alone is not enough.

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

IV(A) is about loyalty and not harming the employer, including independent practice. IV(B) is about accepting extra pay or benefits from third parties that may conflict with the employer's interests. Both can apply in one case.

Does Standard IV(C) make supervisors liable for everything their team does?

No. It requires reasonable efforts, meaning adequate procedures, monitoring and prompt action on red flags. A supervisor who did this may not be in violation if an employee still breaks rules.

Can I contact clients after leaving my employer?

Generally yes, if you use only information from memory and do not take records, files or non-public client lists. You must also keep acting in the employer's interest until you actually leave.