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

CFA Handbook Preface: Revised Conflicts of Interest Standard

Updated 7 October 2026 · Fact-checked

Standard VI covers conflicts of interest. The exam tests the Standard VI rules, not edition changes. Disclose anything that could impair independence or objectivity, give client and employer transactions priority over your own, and disclose referral fees paid or received. Find the conflict in the vignette, name the Standard, then pick the action that discloses to everyone affected.

Understand Handbook Preface: Revised Standard Relating to Conflicts

Every new edition of the Standards of Practice Handbook opens with a preface. The preface lists what the editors changed: new or reworded guidance, updated examples, and clearer explanations. It is a summary for readers who know the older edition. It is not a separate Standard, and it does not replace the Standard text.

For Level II you do not need to memorise a list of edits. You need to apply the current text of Standard VI, as printed in the official Handbook you study from. Read the preface once to see where the editors put emphasis. Then learn the rules in the Standard and its guidance. If your study text and this page ever differ, the official text wins.

Standard VI is about conflicts of interest. A conflict exists when your own interests, or those of a third party, could pull you away from acting for clients and your employer. There are three parts. VI(A) Disclosure of Conflicts requires full and fair disclosure of matters that could reasonably be expected to impair your independence and objectivity or interfere with your duties. VI(B) Priority of Transactions says transactions for clients and employers have priority over investment transactions in which you are the beneficial owner. VI(C) Referral Fees requires disclosure of any compensation or benefit paid or received for recommending products or services.

The guidance stresses that disclosure must be prominent, in plain language, and effective in communicating the relevant information. A buried footnote or jargon-heavy line does not meet that bar. Disclosure goes to the people affected: clients, prospective clients and your employer. The best defence against a conflict is to avoid it where you can and to disclose it where you cannot.

In the exam, the vignette gives you a person in a work situation. Your job is to spot the conflict, link it to the right part of Standard VI (sometimes with another Standard such as I(B) or IV(B)), and choose the response that fits the Standard.

Key formulas to remember

Standard VI(A) Disclosure of Conflicts
Disclose all matters that could reasonably be expected to impair independence and objectivity or interfere with duties to clients, prospects and employer
Disclosure must be prominent, in plain language and effective. Ownership of shares, board seats, and employer relationships with an issuer are typical triggers.
Standard VI(B) Priority of Transactions
Transactions for clients and employers have priority over investment transactions in which the member is the beneficial owner
Do not trade your own account ahead of client or employer transactions. Follow your firm's pre-clearance and reporting rules for personal trading.
Standard VI(C) Referral Fees
Disclose to employer, clients and prospects any compensation or benefit paid to or received from others for recommending products or services
Disclose before the client enters a service agreement, so the client can judge the recommendation's value.
Preface rule of use
Preface = summary of changes; Standard and guidance text = what you apply
Answer from the Standard, not from memory of what changed between editions.

How to solve Handbook Preface: Revised Standard Relating to Conflicts questions

    Quickest way: Three-question conflict check

    When to use it: Use it when time is short and the vignette is long. It works for most conflicts questions.

    1. Ask: does my interest, or a benefit I get, clash with a client's or employer's interest? If yes, it is Standard VI territory.
    2. Ask: is it a trade (VI(B)), a payment for referring (VI(C)), or any other matter affecting objectivity (VI(A))?
    3. Ask: who needs to know, and was it disclosed clearly and in time? Choose the option that discloses to all affected parties or gives client and employer transactions priority.

    Common mistakes in Handbook Preface: Revised Standard Relating to Conflicts

    • Treating the preface as a Standard and trying to memorise every edit.

      The question wording mentions the edition, so students assume edition changes are tested directly.

      Fix: Use the preface for orientation only. Learn and apply the Standard VI text and its guidance.

    • Disclosing a conflict to the employer only.

      Students think the employer is the main party to protect.

      Fix: VI(A) covers clients, prospective clients and the employer. VI(C) also requires disclosure to all three.

    • Thinking a small or hidden disclosure is enough.

      Students focus on whether a disclosure was made, not how.

      Fix: Disclosure must be prominent, in plain language and effective. A buried or technical note falls short.

    • Allowing a personal trade ahead of a client trade because the amount is small.

      Size seems to reduce harm.

      Fix: VI(B) gives client and employer transactions priority over your personal beneficial-ownership transactions. Size does not remove that duty.

    • Ignoring a referral fee because the recommendation was good for the client.

      Students judge the outcome, not the process.

      Fix: VI(C) requires disclosure of the fee regardless of quality, so the client can judge the recommendation.

    • Choosing 'follow local law' as the answer.

      Standard I(A) makes students think legal compliance ends the analysis.

      Fix: If the Code and Standards are stricter than local law, follow the stricter. Disclosure and priority duties apply even where law is silent.

    Worked examples

    Example 1

    Vignette: Ana Silva is an equity analyst at a global asset manager. She owns a small number of shares in Brightwave Ltd, a company she covers. She is about to publish a Buy recommendation on Brightwave. Her firm's research report template has no field for personal holdings. Question 1: Which Standard is most relevant? Question 2: What should Silva do before publishing? Options for Q2: A) Publish, since the holding is small; B) Disclose the holding prominently in the report and to her employer; C) Sell the shares after the report is released.

    Show the solution
    1. Question 1: The conflict is personal ownership that could affect objectivity in a recommendation. That is Standard VI(A) Disclosure of Conflicts, and it also touches Standard I(B) Independence and Objectivity.
    2. Question 2: VI(A) requires full and fair disclosure of matters that could reasonably be expected to impair objectivity. A small size does not remove the duty, so A is wrong.
    3. Selling after the release (C) would still leave the readers without the disclosure when they read the report, so C is wrong.
    4. B discloses to readers and to the employer, and meets the prominence requirement.

    Answer: Q1: Standard VI(A). Q2: B, disclose the holding prominently in the report and to her employer.

    Example 2

    Vignette: Ravi Menon is a portfolio manager. A client order to buy shares of Corvex plc is placed with the trading desk at 10:00. At 10:05, before the client order is executed, Menon places his own order for the same shares in his personal brokerage account. He is also paid a fee by a broker for steering new clients to it, and has not told his clients. Question 1: Which Standard is violated if Menon's personal order is executed first? Question 2: Which Standard covers the broker fee? Question 3: What is the correct action on the fee? Options for Q3: A) Keep it private, since clients benefit from the broker's service; B) Disclose it to his employer and clients before they use the broker; C) Disclose it only to his employer.

    Show the solution
    1. Question 1: The client order was already placed at 10:00. Placing a personal order at 10:05 and having it executed ahead of the client order gives his own transaction priority over the client's. That violates Standard VI(B) Priority of Transactions.
    2. Question 2: A fee for recommending a broker is compensation for referring services. That falls under Standard VI(C) Referral Fees.
    3. Question 3: VI(C) requires disclosure to the employer, clients and prospects, and it should happen before the client enters the arrangement. A hides it and fails the Standard. C leaves the clients uninformed.

    Answer: Q1: Standard VI(B). Q2: Standard VI(C). Q3: B, disclose to his employer and clients before they use the broker.

    Exam tips

    • Every conflicts question sits inside a vignette. Underline who gains, who is affected and what was disclosed.
    • Pick the answer that discloses to all affected parties: clients, prospects and the employer.
    • For trades, remember that client and employer transactions have priority over your own beneficial-ownership transactions.
    • Do not rely on memory of edition changes. If an option cites the preface instead of a Standard, treat it with suspicion.
    • Watch for a second Standard in the same vignette, such as I(B) with VI(A), or IV(B) with VI(C), and choose the option that fixes every breach.

    Handbook Preface: Revised Standard Relating to Conflicts in other exams

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

    Handbook Preface: Revised Standard Relating to Conflicts: frequently asked questions

    Do I need to memorise what changed in the 12th edition for Standard VI?

    No. The exam asks you to apply the Standards in a case. Read the preface for context, then learn the current text and guidance of Standard VI(A), VI(B) and VI(C).

    Is the Handbook preface part of the Code and Standards?

    No. The preface summarises the edition and explains what was updated. The Code of Ethics and Standards of Professional Conduct, with their guidance, are what you apply.

    What are the three parts of Standard VI?

    VI(A) is Disclosure of Conflicts. VI(B) is Priority of Transactions. VI(C) is Referral Fees. Each one protects clients and the employer from your personal interest.

    How should a conflict be disclosed?

    The disclosure should be prominent, written in plain language and effective in communicating the relevant information. It should reach the clients, prospects and employer affected, and come before the service or recommendation.