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

Standard IV(B) Additional Compensation Arrangements and Written Consent

Updated 7 October 2026 · Fact-checked

Standard IV(B) 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 get written consent from all parties involved. Spot the outside payment, then check for written consent, in practice the employer's written reply to your notice.

Understand Standard IV(B) Additional Compensation Arrangements

Your employer pays you to act in its interest. If a third party also pays you, or gives you benefits, your loyalty can be pulled in two directions. Standard IV(B) exists to stop that quietly happening.

The Standard 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 interest. The exception is when they obtain written consent from all parties involved.

In practice, you give your employer written notice describing the arrangement, and the employer consents in writing. Read the vignette to see who is paying and who is affected, and check that the disclosure was in writing and came before you accepted.

The key test is the possible conflict, not actual harm. A bonus from a client tied to the performance of one account, or a payment from a company you cover for favourable research, could change how you act. The arrangement must be disclosed and agreed in writing before you accept.

The term compensation is broad. It covers cash, but also benefits and other consideration such as gifts, equity, trips or future work. The term written matters. A verbal okay from your manager is not enough under the Standard.

The Standard also fits with Standard VI(A), which covers disclosure of conflicts to clients and employers, and with Standard I(B), independence and objectivity. Some items, like a small gift that cannot reasonably create a conflict, are less of a concern, but the safe approach is to disclose when in doubt.

Key formulas to remember

Core rule of Standard IV(B)
Outside compensation or benefit that competes with, or could reasonably create a conflict with, the employer's interest → written consent from all parties involved is required
Consent must come before you accept the arrangement, not after. In practice: written notice to the employer, then the employer's written consent.
What the written disclosure should include
Disclosure = nature of the arrangement + who pays + amount or basis of payment + duration
Give enough detail for the employer to judge the conflict. Vague disclosure does not protect you.
Recommended compliance practice
Employer should have procedures for reviewing outside compensation; member makes written request to the employer, employer replies in writing
Keep all the documents. They are your evidence of compliance.

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

Use this order for any Standard IV(B) item in a vignette. It keeps you from being distracted by details that do not matter.

  1. 1Find who is paying or giving the benefit. Is it someone other than the employer, such as a client, issuer or outside firm?
  2. 2Identify what is received: cash, bonus, equity, gift, trip, or other benefit.
  3. 3Ask whether it could compete with the employer's interest or reasonably create a conflict. Link it to the member's duties.
  4. 4Check whether the member obtained consent before accepting, and whether it was written: a written notice to the employer and the employer's written reply.
  5. 5If consent is missing, only verbal, or given after the fact, name the violation of Standard IV(B) and say what should be done.
  6. 6Look for a related Standard that is also breached, such as VI(A) for non-disclosure or I(B) for lost objectivity.
  7. 7Choose the answer that gives written disclosure and written consent before accepting, not one that just stops the activity or only tells a colleague.

Quickest way: Three-check shortcut for IV(B) questions

When to use it: Use when you are short on time and the vignette clearly has an outside payment or benefit.

  1. Outside pay or benefit? If no, IV(B) is probably not the issue.
  2. Possible conflict with employer's interest? If yes, consent is needed.
  3. Written consent obtained before accepting, in practice the employer's written reply to the member's written notice? If no, it is a violation.
  4. Pick the answer with written notice, written consent and prior disclosure. Reject answers that rely on verbal approval, after-the-fact notice, or that say the amount is too small to matter.

Common mistakes in Standard IV(B) Additional Compensation Arrangements

  • Treating verbal approval from a manager as enough.

    In real life, informal okays feel normal and fast.

    Fix: The Standard requires written consent. Choose answers that mention a written request and written reply.

  • Thinking the arrangement is only a problem if the employer is actually harmed.

    Students focus on outcomes instead of the risk of a conflict.

    Fix: The test is whether the arrangement competes with or might reasonably create a conflict. Actual harm is not required.

  • Disclosing after accepting the compensation.

    The member plans to tell the employer once the deal is done.

    Fix: Get consent before accepting. Late disclosure still leaves the member exposed.

  • Confusing IV(B) with Standard VI(A).

    Both involve disclosure of conflicts.

    Fix: IV(B) is about outside pay or benefits and needs written consent from all parties involved. VI(A) is about disclosing conflicts of interest to clients, prospects and employers so they can judge objectivity. Both can apply in one case.

  • Assuming only cash counts.

    The word compensation suggests money.

    Fix: Gifts, benefits and other consideration also count. Watch for trips, equity stakes, or promises of future work.

  • Skipping the written notice to the employer.

    The member assumes the employer will not mind or will find out anyway.

    Fix: Give the employer written notice describing the arrangement and wait for the employer's written consent. Read the vignette for whether this happened before the compensation was accepted.

Worked examples

Example 1

Vignette: Priya is a portfolio manager at a global asset manager. A client offers her a bonus on top of her salary if one account outperforms its benchmark this year. Priya's employer does not know about the offer. She wants to accept. Q1: Does the offer raise an issue under Standard IV(B)? Q2: What should Priya do before accepting?

Show the solution
  1. Identify the payer and benefit: a client offers an extra bonus, outside her employer's pay.
  2. Test for conflict: the bonus depends on one account only. This could lead Priya to favour that account, so it could reasonably create a conflict with her employer's interests. It also raises a related fairness and disclosure issue toward her other clients.
  3. Check consent: her employer does not know, so there is no written consent.
  4. Decide the action: she should disclose the offer to her employer in writing and obtain the employer's written consent before accepting. Without it she would violate Standard IV(B).

Answer: Q1: Yes. The bonus could reasonably create a conflict, so IV(B) applies. Q2: Priya should disclose the offer to her employer in writing and obtain the employer's written consent before accepting.

Example 2

Vignette: Daniel, an equity analyst at a brokerage, is asked by a listed company he covers to give a paid talk at its investor day. His manager says in a hallway chat, 'Sure, go ahead.' Daniel accepts the fee and later the compliance team asks about it. Q1: Did Daniel comply with Standard IV(B)? Q2: What was the best step before accepting?

Show the solution
  1. Identify the payer and benefit: a company he covers pays him a speaking fee. This is outside compensation.
  2. Test for conflict: payment from a covered company could affect his research objectivity, so a conflict is reasonably possible.
  3. Check consent: only a verbal okay from his manager. The Standard needs written consent.
  4. Conclude: the consent is not adequate, so he did not comply.
  5. Best step: send his employer a written request describing the fee and the company, disclose the arrangement, and wait for the employer's written consent before accepting. Compliance should also be involved under the employer's procedures.

Answer: Q1: No. A verbal approval is not the written consent the Standard requires. Q2: Daniel needed written consent from his employer before accepting the fee, along with disclosure of the arrangement.

Exam tips

  • Look for the words written, before and all parties. Answer choices that rely on verbal approval or later notice are usually wrong.
  • The answer that makes the arrangement transparent in writing usually beats the one that simply refuses the payment, unless the vignette shows consent would be refused.
  • Watch for a second Standard in the same item set, such as VI(A) or I(B). Read the question stem to see which one is asked.
  • Small or customary items can appear as distractors. Do not assume a small amount removes the need for disclosure if a conflict is possible.
  • Item set questions are answered from the vignette. Underline who pays, what they give, and whether every party involved agreed in writing.

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 does Standard IV(B) require?

It requires you not to accept gifts, benefits, compensation or consideration that competes with, or might reasonably create a conflict with, your employer's interest unless you get written consent from all parties involved. In practice, you give your employer written notice describing the arrangement and the employer consents in writing. Consent should be obtained before you accept.

Does verbal consent from my manager satisfy Standard IV(B)?

No. The Standard calls for written consent from all parties involved. A written request and written reply protect you and your employer, and give evidence if questions arise later.

How do I disclose side compensation under the CFA ethics rules?

Send your employer a written description of the arrangement: who is paying, what you will receive, how it is calculated and how long it lasts. Wait for the employer's written consent before accepting. Keep copies of the documents.

Is Standard IV(B) the same as Standard VI(A)?

No. IV(B) deals with outside compensation and needs written consent from all parties involved. VI(A) deals with disclosing conflicts of interest so clients, prospects and employers can judge your objectivity. A single case can breach both.