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

A portfolio manager's employer changes his bonus from an annual profit basis to one based on each quarter's profits, which worsens an already disclosed conflict. According to Standard VI(A), the manager's disclosures should most likely be:

The disclosures should be updated. The guidance names a shift from annual to quarterly profit-based bonuses as a material worsening of a conflict, so best practice is to update the disclosure, erring on the side of caution, so clients can judge the manager's objectivity.

  1. Aleft unchanged because the conflict was already disclosed.
  2. Bupdated because the nature of the conflict has changed materially.Correct
  3. Creplaced by a general statement that conflicts may exist.

Explanation

The guidance says best practice is to update disclosures when the nature of a conflict changes materially, and gives the move from annual to quarterly profit bonuses as an example. Leaving the disclosure unchanged would leave clients with outdated information. A vague general statement is not prominent, plain, or effective.

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