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

An analyst receives a referral fee from a fund manager she recommends to clients. She tells clients: "I may receive some benefit from this manager." Which action would most likely satisfy the disclosure requirements of Standard VI(C)?

The analyst should state the nature of the benefit, such as flat fee or percentage, one-time or continuing, together with its estimated dollar value. Vague wording or proof that the recommendation was objective does not meet Standard VI(C), which aims to let clients assess partiality and full cost.

  1. ATelling clients that the manager was selected after an independent review confirmed its suitability
  2. BProviding the nature of the benefit, such as a flat fee or percentage, one-time or continuing, together with its estimated dollar valueCorrect
  3. CGiving clients a generic statement in the firm's annual report that referral arrangements may exist

Explanation

Appropriate disclosure must state the nature of the consideration (flat fee or percentage basis, one-time or continuing, performance-based, or noncash benefit) together with the estimated dollar value. A suitability review (as in Arronski's case) does not replace disclosure, and a generic annual-report statement is not disclosure before the formal agreement.

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