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

Handley works in the trust department of Central Trust Bank and is paid for each client he refers to the bank's own personal financial management department that results in a sale. He does not tell the clients about the payment, reasoning that it is an internal arrangement and no third party is involved. His conduct most likely:

Handley most likely violates Standard VI(C). The Standard makes no distinction between third-party referral payments and internal payments between departments of the same firm, so he must disclose the arrangement to the clients at the time of referral.

  1. Acomplies with Standard VI(C), because the payment comes from his own employer
  2. Bviolates Standard VI(C), because internal referral payments must be disclosed just like third-party paymentsCorrect
  3. Ccomplies with Standard VI(C), provided that the clients' accounts are profitable

Explanation

Standard VI(C) does not distinguish between payments from a third party and internal payments within a firm to attract business to a subsidiary or department. Handley must disclose the arrangement to clients at the time of referral. Client profitability does not remove the duty.

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