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CFA Level II Exam · Guidance for Standard VI: Conflicts of Interest

Conflicts with Stock Ownership and Cross-Departmental Conflicts in CFA Standard VI(A)

Updated 7 October 2026 · Fact-checked

Standard VI(A) requires full and fair disclosure of conflicts that could impair your independence and objectivity. The guidance also says to avoid conflicts where possible and disclose those that remain. Stock ownership in covered companies and pressure between research, investment banking and sales are common conflicts. Find the conflict, check who is affected, then apply disclosure and any firm safeguards.

Understand Conflicts with Stock Ownership and Cross-Departmental Conflicts

Standard VI(A) says members and candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with their duties to clients, prospective clients and employer. You must also ensure the disclosures are prominent, delivered in plain language and communicate the relevant information effectively.

Stock ownership is the first source of conflict. If you or your firm own shares in a company you cover, your recommendation may be biased, or may look biased. Clients and your employer need to know. The test is not whether you actually acted badly. The test is whether the ownership could reasonably be expected to affect your objectivity.

The second source is conflict between departments. A firm may have a research department, an investment banking department and a sales or brokerage department. Investment bankers earn fees from corporate clients. If they can pressure analysts to write favourable reports on those clients, research stops being independent. Sales staff may also push analysts toward ratings that help them sell. This links to Standard I(B) on independence and objectivity.

The usual approach is a mix of disclosure and structure. The Standard itself requires full and fair disclosure. The Standards' guidance adds that members should avoid conflicts where possible and disclose the ones that remain. Disclosure tells the reader about the conflict so they can judge the advice. Avoidance removes the conflict, for example by not trading or not covering the company. Information barriers, often called firewalls, keep departments separate so that research is not influenced by banking. Firm policies on restricted lists, watch lists and separate reporting lines support these barriers.

Avoidance and disclosure work together rather than as rivals. Where a conflict cannot be removed, it must be disclosed. Where it can be avoided, avoiding it is sensible, and any conflict that remains is still disclosed. You should also get to know the firm's policy and follow it. Disclosing to your employer is also required where the conflict affects your duties to the employer.

Key formulas to remember

Standard VI(A) core duty
Conflict that could impair independence or objectivity → make full and fair disclosure
Disclosure must be prominent, in plain language, and reach clients, prospects and the employer. Guidance: avoid conflicts where possible and disclose those that remain.
Who must receive disclosure
Clients + prospective clients + employer
Disclosure to the employer is also needed when your personal holdings could conflict with your duties.
Test for a conflict
Could the interest reasonably be expected to impair objectivity? Yes → disclose
Actual bias need not be proven. The appearance of bias counts.
Information barrier purpose
Firewall between research, investment banking and sales
Keeps analysts independent. Does not remove the need to disclose a firm's holdings or banking relationships.
Avoid and disclose
Avoid conflicts where possible; disclose those that remain
This comes from the Standards' guidance. The Standard's own wording requires full and fair disclosure.

How to solve Conflicts with Stock Ownership and Cross-Departmental Conflicts questions

Use this method on any Standard VI(A) item in a vignette. Read the facts first, then match them to the remedy.

  1. 1Identify the conflict in the vignette: personal stock, firm stock, a banking relationship, or departmental pressure.
  2. 2Ask who is affected: clients, prospects, the employer, or all three.
  3. 3Ask whether the interest could reasonably impair independence and objectivity. If not, there may be no violation.
  4. 4Check what the member actually did: disclosed, stayed silent, changed a rating, traded, or complied with the firm policy.
  5. 5Decide the remedy: full and fair disclosure of the conflict, plus avoidance where possible and a firewall or firm policy where relevant.
  6. 6Name the Standard, usually VI(A), and add I(B) when independence is affected, or IV(A) when duties to the employer are involved.
  7. 7Pick the option that applies the Standard exactly, not the one that is merely cautious or lenient.

Quickest way: Three-question screen

When to use it: Use when you have about two minutes for a three-option ethics question and the facts are short.

  1. Is there an interest that could bias advice? If no, no violation.
  2. Was it disclosed clearly to the right parties? If no, the member has likely violated VI(A).
  3. Was the pressure from another department allowed to change the research? If yes, I(B) is also violated. Pick the option that restores independence.

Common mistakes in Conflicts with Stock Ownership and Cross-Departmental Conflicts

  • Thinking a conflict is only a violation if the analyst actually acted on it

    Students treat the Standard as punishing bad outcomes.

    Fix: The Standard is about conflicts that could reasonably impair objectivity. Disclosure is required even if no harm occurred.

  • Assuming a firewall removes the need to disclose

    Firewalls sound like a full solution.

    Fix: A firewall supports independence, but the firm's holdings or banking ties may still need disclosure to clients.

  • Treating disclosure and avoidance as the same thing

    Both are ways to deal with a conflict.

    Fix: Disclosure informs. Avoidance removes the conflict. The Standard requires full and fair disclosure. The guidance says to avoid conflicts where possible and disclose those that remain.

  • Disclosing only to clients and forgetting the employer

    The standard name focuses attention on clients.

    Fix: Disclose to clients, prospects and the employer where each is affected.

  • Letting investment banking pressure change a rating

    Students think following a senior colleague is acceptable.

    Fix: Research must stay independent. Changing a rating because of banking pressure breaches Standards I(B) and VI(A).

  • Burying the disclosure in fine print

    Students think any mention counts.

    Fix: The disclosure must be prominent and in plain language that communicates effectively.

Worked examples

Example 1

Vignette: Mei Tan is a research analyst at a brokerage. She owns shares in Altra Corp, which she covers, and she is about to publish a Buy report. She has told her compliance officer about the holding but the report does not mention it. Question: What should Tan do to comply with the Standards?

Show the solution
  1. Conflict: personal stock ownership in a covered company.
  2. Ownership could reasonably be expected to affect objectivity, so the report readers should know.
  3. Tan told compliance, so the employer is covered. Clients reading the report are not.
  4. Standard VI(A) requires prominent disclosure to clients as well.

Answer: Tan should disclose her ownership of Altra prominently in the report. Telling only her employer is not enough under Standard VI(A).

Example 2

Vignette: At Brightline Securities, the investment banking head tells analyst Raj Menon that Zento Ltd, a banking client, will move its business if the research rating is not raised from Hold to Buy. Menon's analysis supports Hold. The firm has no formal information barrier. Questions: (1) What should Menon do with the rating? (2) What should the firm do?

Show the solution
  1. Conflict: cross-departmental pressure from investment banking on research.
  2. Menon's analysis supports Hold. Changing it to please banking would impair independence and objectivity.
  3. Menon should keep the rating that the analysis supports and report the pressure to supervisors or compliance.
  4. The firm should set up information barriers and policies separating research from banking, and disclose its banking relationship with Zento in reports.

Answer: (1) Menon should keep the Hold rating that his analysis supports and report the pressure. (2) The firm should create an information barrier and disclose the banking relationship. Raising the rating would violate Standards I(B) and VI(A).

Exam tips

  • Look for the words in the vignette that signal a conflict: owns shares, banking client, fee, bonus linked to ratings, supervisor pressure.
  • When one option says disclose and another says do nothing because no harm occurred, disclose is usually right.
  • Watch for the difference between telling the employer and telling clients. The correct answer often needs both.
  • If an option relies on a firewall alone to solve a stock holding conflict, be cautious. Disclosure is still needed.
  • Name the Standard in your head before choosing: VI(A) for disclosure, I(B) for independence.

Conflicts with Stock Ownership and Cross-Departmental Conflicts in other exams

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

Conflicts with Stock Ownership and Cross-Departmental Conflicts: frequently asked questions

Do I have to disclose stock I own in a company I cover?

Yes, if the holding could reasonably be expected to impair your objectivity. Disclose it prominently to clients and prospects, and tell your employer. Following firm policy on holdings is also expected.

What is the difference between disclosure and avoidance of conflicts?

Disclosure tells affected parties about the conflict so they can judge your advice. Avoidance removes the conflict, for example by not covering the company. Standard VI(A) requires full and fair disclosure, and the guidance recommends avoiding conflicts where possible and disclosing those that remain.

Can an investment banker influence a research rating?

No. Research must be independent of banking. If pressure changes the rating, the analyst and firm breach independence and conflict standards. Firms should use information barriers and policies to prevent this.

What is an information barrier?

It is a firm policy and structure that separates departments, such as research and investment banking, so information and influence do not pass between them. It supports independence but does not replace disclosure of relationships.