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CFA Level III · Level III Core

Guidance for Standard VI: Conflicts of Interest

Standard VI covers three duties: make full and fair disclosure of all matters that could reasonably be expected to impair your independence and objectivity or interfere with duties to clients, prospects and your employer (A); give transactions for clients and employers priority over your personal transactions (B); and disclose any referral fees you give or receive (C). You solve cases by spotting the conflict, naming the standard, and stating the required action.

What this chapter covers

Standard VI is the last of the seven Standards of Professional Conduct. It deals with situations where your own interests, or your firm's, could pull against a client's or an employer's. The chapter has three parts: VI(A) Disclosure of Conflicts, VI(B) Priority of Transactions and VI(C) Referral Fees.

The guidance goes beyond the text of the standards. It looks at stock ownership, compensation, gifts, research independence and the pressure between departments such as investment banking and research. Learn this guidance from the current Standards of Practice Handbook in your official curriculum materials. Do not rely on memory of older versions.

This chapter sits inside the Ethical and Professional Standards topic, which is part of the common core for every pathway. Ethics appears in item sets and in essay sets. The same skills carry into portfolio management cases, where a recommendation can create a conflict. They also support GIPS and other ethics chapters, which use the same method: facts, standard, violation or not, action.

Ethical and Professional Standards carries a meaningful share of the topic weight, and every pathway is tested on it. Conflict cases are very testable because the facts are short and the answer turns on one or two details, such as whether disclosure was made, whether it was timely, or whether a client trade came ahead of a personal trade. Each item set question is worth 3 points, and essay sets reward precise wording. With no penalty for wrong answers and no minimum score per topic, ethics is a dependable source of marks for candidates who practise applying the rules.

Guidance for Standard VI: Conflicts of Interest: topics in the order to study them

  1. 1Standard VI(A): Disclosure of ConflictsIt is the base rule: make full and fair disclosure of matters that could impair independence and objectivity, clearly and in time. The other parts build on this idea.
  2. 2Conflicts with Stock Ownership and Cross-Departmental ConflictsIt applies VI(A) to real situations such as personal holdings, research independence and information barriers between departments.
  3. 3Standard VI(B): Priority of TransactionsOnce you know disclosure, you learn the priority rule: transactions for clients and employers take priority over your personal transactions. The Standard does not rank clients above employers.
  4. 4Standard VI(C): Referral FeesIt is a short, separate duty about disclosing payments for referrals, easy to learn after the first two.
  5. 5Application CasesCases come last because they mix all three parts and need you to pick the correct standard under time pressure.

How to prepare Guidance for Standard VI: Conflicts of Interest

Study this chapter in short blocks. The rules are few, so most of your time should go to applying them to case facts.

  1. Read each standard in the Standards of Practice Handbook and write its duty in one sentence of your own.
  2. For each part, list the words that trigger it: ownership, compensation, personal trade, referral, pressure from another department.
  3. Learn the required action for each trigger: disclose, in what form, to whom, and when. The guidance also suggests avoiding or managing a conflict where disclosure alone is not enough.
  4. Work application cases by writing three lines: the conflict, the standard involved, and the action required.
  5. Practise item sets under time, then write essay-style answers that name the standard and give the reason in a sentence or two.
  6. Review wrong answers and note whether you missed the standard, a detail in the facts, or the required action.
  7. Revisit the guidance last and check your notes against the current Handbook text.

Common mistakes in Guidance for Standard VI: Conflicts of Interest

  • Treating any conflict as a violation

    Fix: Check the facts. The breach is usually failing to disclose or manage the conflict, not having it.

  • Accepting vague disclosure as enough

    Fix: Look for disclosure that is specific, prominent and given in time for the client to decide.

  • Misreading the priority rule in VI(B)

    Fix: Remember that transactions for clients and employers take priority over personal transactions. Test each trade against that rule.

  • Missing the timing in referral fee cases

    Fix: Check that disclosure came before the service, and that it covers the nature of the benefit.

  • Naming the wrong standard

    Fix: Pick the standard that best matches the main failure, and name it in essay answers with a short reason.

  • Relying on remembered older guidance

    Fix: Study the guidance from the current Standards of Practice Handbook and update your notes.

Last-day revision: Guidance for Standard VI: Conflicts of Interest

  • VI(A): make full and fair disclosure of matters that could impair your independence and objectivity, so clients, prospects and employers can judge it.
  • Disclosure must be full, fair, prominent and in plain language.
  • Conflicts can come from stock ownership, compensation or outside relationships.
  • Research analysts need independence from investment banking and other pressure.
  • Firms use information barriers and policies to manage cross-departmental conflicts.
  • VI(B): transactions for clients and employers have priority over personal transactions.
  • Personal trading must not disadvantage clients or exploit their trades.
  • VI(C): disclose any compensation or benefit given or received for referrals.
  • Disclosure of referral fees must be made before services are provided.
  • In a case, name the conflict, the standard, and the action in that order.
  • Check whether disclosure was actually made and in time before you call it a violation.
  • Use the guidance exactly as in the current Handbook text.

Guidance for Standard VI: Conflicts of Interest in other exams

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

Guidance for Standard VI: Conflicts of Interest: frequently asked questions

What are the three parts of Standard VI?

They are VI(A) Disclosure of Conflicts, VI(B) Priority of Transactions and VI(C) Referral Fees. Each covers a different way your interests could clash with those of clients or your employer.

How do I answer a Standard VI essay question?

Read the command word, then state the standard, whether it was violated and the reason in the fewest words that earn the point. Stay within the number of responses asked for, since only those are evaluated.

Is disclosure always enough to fix a conflict?

No. Disclosure must be clear and timely, and the guidance says some situations also call for the conflict to be managed or avoided. Read the facts to see whether disclosure alone meets the duty.

Does this chapter apply to every pathway?

Yes. Ethical and Professional Standards is part of the common core, so every candidate is tested on it whichever pathway they choose.