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IAI Actuarial Core Principles · Business Management · Professionalism and ethics case studies

An actuary, Kabir, is advising a pension fund trustee board and also holds a significant personal shareholding in the sponsoring company, which would benefit if the trustees choose a low-contribution funding plan. He has not told the trustees. Which assessment is most accurate?

Kabir has an undisclosed conflict of interest. He should disclose it promptly to the trustees and either manage it with their informed consent or step aside. Legality of the shareholding, later disclosure or a good eventual outcome does not remove the duty of disclosure.

  1. ANo issue arises, because holding shares is legal and so need not be disclosed
  2. BThe issue is resolved if he recommends the cheaper plan, as it benefits shareholders
  3. CHe has an undisclosed conflict of interest; he should disclose it and either manage it with the trustees' informed consent or step asideCorrect
  4. DHe need only disclose it after the plan is adopted
  5. The conflict matters only if the plan is later proved to be inadequate

Explanation

A conflict exists when personal interest may affect independent judgment, regardless of whether harm results. Timely disclosure and management or withdrawal are required. Legality of the shareholding, or an outcome later proving fine, does not remove the duty.

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