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Level III Core · Guidance for Standard IV: Duties to Employers

Standard IV(B) Additional Compensation Arrangements Explained

Updated 9 October 2026

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. To solve a question, spot the outside payment, check for conflict, then look for written consent.

Understand Standard IV(B) Additional Compensation Arrangements

Your employer expects your loyalty. If a client or a third party pays you extra for the same work, your incentives can shift. You might start serving whoever pays you most, not your employer or its other clients.

Standard IV(B) deals with this risk. Members 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 interests. The exception is when they get written consent from all parties involved.

The key word is written. A verbal okay does not meet the standard. Consent must come from the employer, and from the other parties involved. Disclosing the arrangement to the employer is the starting point, but the standard requires written consent.

"Compensation" is wide. It covers cash bonuses, performance fees paid by a client directly to you, gifts, referral benefits and other consideration. The test is whether the arrangement could reasonably create a conflict with the employer's interests. A small arrangement that cannot affect your work is less likely to be a problem, but when in doubt, ask and document.

This standard is different from Standard VI(A), Disclosure of Conflicts, which requires full and fair disclosure of matters that could impair your independence and objectivity or interfere with your duties to your employer, clients and prospective clients. Standard IV(B) is specifically about extra pay or benefits connected to your work, and it asks for written consent, not only disclosure. Standard IV(A) also covers loyalty and outside work, so exam cases can touch more than one standard.

Key rules to remember

Core rule of Standard IV(B)
Compensation or benefit that competes with, or could reasonably create a conflict with, the employer's interests → needs written consent from all parties involved
Without written consent, accepting it is a violation.
Form of consent
Consent must be in writing; verbal approval is not enough
Keep a copy. Written consent is the evidence you complied.
Who must consent
All parties involved, including your employer
Do not rely on the client or third party alone.

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

Use the same short sequence for any vignette about gifts, bonuses or side payments.

  1. 1Identify the extra payment or benefit and who offers it: a client, a third party or someone else.
  2. 2Ask whether it relates to your work and whether it competes with, or could reasonably create a conflict with, your employer's interests.
  3. 3If no conflict is reasonably possible, the standard is unlikely to be breached, but check for other standards such as VI(A).
  4. 4If a conflict is possible, check whether written consent was obtained from the employer and all parties involved.
  5. 5If consent is missing, the member violated IV(B). If consent is present in writing, the member complied.
  6. 6State the right action: disclose the arrangement fully, request written consent, and decline the payment until you have it.
  7. 7Match your answer to the question's command word: identify, determine, or justify. Give the reason in one line.

Quickest way: Three-check test

When to use it: Use this on item set questions where you must pick the violation or the correct action quickly.

  1. Check 1: Is there extra pay or a benefit connected to the job?
  2. Check 2: Could it reasonably create a conflict with the employer's interests?
  3. Check 3: Is there written consent? If check 2 is yes and check 3 is no, it is a violation. Answers that say verbal approval or later disclosure is enough are wrong.

Common mistakes in Standard IV(B) Additional Compensation Arrangements

  • Treating verbal approval from a manager as consent.

    In daily work, informal approval feels normal.

    Fix: Remember the standard says written consent. Verbal approval does not meet it.

  • Thinking only the employer's consent matters.

    The standard is about duties to employers, so students focus only on the employer.

    Fix: The text requires consent from all parties involved. Look for every party affected.

  • Believing disclosure alone is enough.

    Students mix IV(B) with VI(A), which requires full and fair disclosure of matters that could impair independence and objectivity or interfere with duties to employers, clients and prospective clients.

    Fix: For IV(B), disclose and obtain written consent before accepting the compensation.

  • Assuming any extra payment breaches the standard.

    Students over-apply the rule.

    Fix: The rule applies to compensation that competes with or could reasonably create a conflict with the employer's interests. Judge the conflict first.

  • Thinking the problem is solved by accepting the payment and asking afterwards.

    Students focus on getting approval eventually.

    Fix: Get written consent before accepting. The correct action is to decline until consent is in place.

Worked examples

Example 1

An investment manager at a global asset management firm is offered a bonus by a client if the client's portfolio beats its benchmark this year. The firm's own fee is a flat percentage of assets. The manager tells her supervisor in a hallway conversation and the supervisor says it sounds fine. She accepts the bonus. Did she violate Standard IV(B)?

Show the solution
  1. Extra compensation exists: a client-paid bonus on top of employer pay.
  2. The bonus could reasonably create a conflict with the employer's interests, because it may lead her to favour this client's portfolio over the firm's other clients to earn it.
  3. Check consent: the supervisor's verbal comment is the only approval. It is not written consent.
  4. The standard requires written consent from all parties involved, which means the employer and the client offering the bonus. No written consent was obtained from anyone before she accepted.

Answer: Yes. She violated Standard IV(B) because she accepted potentially conflicting compensation without written consent from all parties involved, including her employer and the client. She should have disclosed the offer and obtained written consent from all parties first, or declined the bonus.

Example 2

A portfolio manager receives a modest company-branded pen set from a client as a holiday thank-you. Separately, a brokerage offers him a cash payment each time he routes client trades to it. He tells his employer about both in writing and receives written consent from his employer for the pen set only. He accepts both. Which acceptance violates Standard IV(B)?

Show the solution
  1. Pen set: a modest gift from a client is typically a Standard I(B) and VI(A) matter, not a IV(B) problem. It is very unlikely to compromise his independence or compete with his employer's interests, so it does not need consent under IV(B). Telling his employer was sensible, and the consent he holds does no harm.
  2. Cash payment from the brokerage for routing trades: this could reasonably create a conflict with his employer's interests, since it may influence where he sends client trades.
  3. Standard IV(B) requires written consent from the employer and the other relevant parties. He has no written consent from his employer for this payment.
  4. Even if his employer did consent, that would not fix the problem. Routing client trades for cash puts his interest ahead of his clients' and breaches his duty of loyalty to clients under Standard III(A). The core breach is of his duties to clients, and the payment should be declined. Employer consent alone cannot cure a breach of duties owed to clients.

Answer: Accepting the brokerage's cash payment violates Standard IV(B) because he has no written consent for it from his employer or the other relevant parties. The core breach is of his duties to clients under Standard III(A). The modest pen set does not violate IV(B). He should decline the cash payment.

Exam tips

  • Look for the word written in answer options. Options that rely on verbal approval are usually wrong.
  • In essay sets, show three parts: the compensation, the conflict it creates, and the missing written consent. Keep it short.
  • Do not confuse IV(B) with VI(A). If the question is about extra pay tied to the job, lean to IV(B).
  • If the command word is recommend or determine the action, say: disclose, get written consent, and decline until then.
  • Remember the timing: consent comes before accepting, not after.

Standard IV(B) Additional Compensation Arrangements: frequently asked questions

What does Standard IV(B) require?

It requires members not to accept gifts, benefits, compensation or consideration that competes with or could reasonably create a conflict with their employer's interests, unless they get written consent from all parties involved.

Is verbal consent from my employer enough under Standard IV(B)?

No. The standard calls for written consent. A verbal okay does not meet it, so get the approval in writing and keep a copy.

How is Standard IV(B) different from Standard VI(A)?

Standard IV(B) covers extra compensation or benefits that could conflict with the employer's interests and needs written consent. Standard VI(A) requires full and fair disclosure of matters that could impair independence and objectivity or interfere with duties to employers, clients and prospective clients.

Do I need consent for every small gift?

The test is whether the gift or payment competes with or could reasonably create a conflict with your employer's interests. Where a conflict is plausible, get written consent. If unsure, ask and document.