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Lesson 14 of 23 15–20% of the exam

You are reading the 2026 curriculum (exams up to November 2026). Sitting in February 2027 or later? Go to the 2027 Ethical and Professional Standards guide.

Standard IV(B): Additional Compensation Arrangements

Do not accept gifts, benefits, compensation or other consideration that competes with, or could reasonably be expected to create a conflict with, your employer's interests unless you have written consent from all parties involved. In practice that means your employer, with the other party's terms confirmed.

4 min cram, 20 min full read. Based on the 2026 CFA® Program Level I curriculum, Ethical and Professional Standards, Learning Module 3. This is the 2026 version of the lesson. Sitting in February 2027 or later? Read the updated 2027 version.

Tailor this to you: take the self-assessment

Before this: Standard IV(A): Loyalty (to employers)

On the exam

  • Demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
  • Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct
  • Identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards

Demonstrate IV(B) and identify compliant conduct. Expect client performance bonuses and outside board seats. The deciding fact is usually whether consent was written and given before accepting.

How deeply to learn each part
Know the idea
Understand it in general. It frames other topics, but you will not calculate with it.
Use it
Understand it well enough to solve a question with it. Recognize when it applies.
Memorize
Learn it by heart. The exam will not give it to you.

You know this one. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still do.

You tested strong here. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still know it.

Cram mode: the one-screen version of this lesson. Switch to Full for the explanations, worked examples and interactives.

What does Standard IV(B) require?

You must not accept gifts, benefits, compensation or consideration that competes with, or might reasonably be expected to create a conflict with, your employer’s interests, unless you obtain written consent from all parties involved. Any outside additional compensation that fits that description needs permission first.

Memorize

The Standard covers direct pay from a client and indirect benefits from third parties alike. Typical examples are performance bonuses from clients, paid directorships, consulting fees and trips. The point is that such arrangements can affect your loyalty and objectivity. Disclosure lets the employer weigh the arrangement when it judges your actions and motives, and lets it know the true cost of the services you provide.

If you work part time, raise any limits on competing activity when you negotiate the job. The Standard then applies to the limits you agreed.

Written consent means any communication that can be documented and retrieved, such as an email. A conversation in a corridor does not qualify, even if a senior person said yes.

The words all parties involved cover the employer and the party offering the compensation. In practice, you report the arrangement to your employer in writing and the offering party confirms the details. Obtain consent before you accept, not after.

Standard IV(B): what to do before accepting
Extra pay or benefit from someone other than your employercash, trips, directorships, fees
  • Does it compete or risk a conflict? Memorize if not, IV(B) is not triggered
    • Client bonus tied to performance
    • Paid directorship or consulting fee
    • Payments from a broker or supplier
  • Written consent first Memorize
    • All parties involved in practice the employer, with the payer's terms confirmed
    • Written, including email verbal is not enough
    • Before accepting never afterward
  • What the written report states Use it
    • Nature of the compensation
    • Approximate amount
    • Duration of the arrangement

What should the written report say?

Make an immediate written report to your supervisor and compliance officer. State the terms of the arrangement:

  • the nature of the compensation or benefit;
  • the approximate amount;
  • the duration of the agreement.

Have the party offering the compensation, including a client offering a performance incentive, confirm the details. Then wait for the employer’s written consent.

Where do the lines fall?

SituationVerdict
A client offers a manager a holiday if her account beats the index by 5%. She tells her boss verballyViolation (consent must be written)
A manager gets written approval by email before accepting a paid seat on a company boardFine
An analyst accepts a one-off thank-you gift card of modest value from a client and reports itFine under I(B). IV(B) bites when the benefit is tied to future performance or competes
A trader accepts monthly “consulting fees” from a broker the firm usesViolation (conflict without consent)
InteractiveDo you need consent for that pay?

Try this 0 of 3

  • Rule on the resort bonus right first time
  • Spot that late consent does not cure the breach
  • Tell IV(B) from I(B) on the thank-you card

Case 1 of 5 The resort bonus

Clara Voss, CFA, manages a portfolio for a wealthy client at Brightwater Investment Partners. The client offers her a week at a beach resort, worth about USD 6,000, if the account beats its benchmark by 5 percentage points this year. Clara mentions it to her supervisor in a hallway conversation, and he says it sounds fine. Nothing is put in writing, and she accepts the offer.

Step 1 of 6 What is the pay for?

What triggers the payment or benefit?

Read the case, then answer each step. 5 cases.

If it could pull your loyalty, get it in writing first.

How does IV(B) differ from I(B) and VI(A)?

Three Standards touch outside benefits, and exam questions test which one applies.

  • I(B) Independence and Objectivity asks whether a gift or benefit threatens your independent judgment. A modest thank-you from a client is usually an I(B) question.
  • IV(B) asks whether pay or benefits compete with, or conflict with, your employer’s interests, and requires written consent. A client bonus for future performance or a paid outside directorship are the classic cases.
  • VI(A) Avoid or Disclose Conflicts requires full and fair disclosure of conflicts to employers, clients and prospects.

Exam tip When a question says “unless the employer agrees in writing” or “tells her supervisor”, look at the form of the consent first.

Go deeper Why client performance bonuses are risky

A bonus tied to one client’s returns gives the manager a personal reason to favor that account. She might take more risk in it, give it the best trade ideas or trade ahead of the firm’s other clients. The firm’s other clients and the employer could be hurt, and the employer cannot manage a risk it does not know about. That is why the employer must hear about the arrangement, and consent in writing, before the benefit is accepted.

Memorize this

MemorizeStandard IV(B): what to know cold

PointThe rule
TriggerPay or benefits that compete with the employer or could reasonably create a conflict
ConsentWritten, from all parties involved, before accepting
Written meansAny documented form, including a retrievable email. Verbal is not enough
Report contentsThe nature, approximate amount and duration, confirmed by the party offering it
Report toThe supervisor and compliance officer, immediately
Not this StandardWhether a gift threatens independence: that is I(B). Disclosing conflicts: VI(A)

Memory hook If it could pull your loyalty, get it in writing first: what, how much, how long.

Know it cold Competing or conflicting benefit + no written prior consent = violation. Verbal or after-the-fact consent does not count.

Standard IV(B): what to do before accepting
Extra pay or benefit from someone other than your employercash, trips, directorships, fees
  • Does it compete or risk a conflict? Memorize if not, IV(B) is not triggered
    • Client bonus tied to performance
    • Paid directorship or consulting fee
    • Payments from a broker or supplier
  • Written consent first Memorize
    • All parties involved in practice the employer, with the payer's terms confirmed
    • Written, including email verbal is not enough
    • Before accepting never afterward
  • What the written report states Use it
    • Nature of the compensation
    • Approximate amount
    • Duration of the arrangement

How it is asked

  1. Client bonus with verbal approval

    A client offers a resort weekend if her account beats the benchmark. The manager gets a verbal okay in a hallway. Violation?

    Yes, IV(B). Consent was not written. Trap: "the supervisor approved it".

  2. Outside board seat

    What should a manager do before accepting a paid seat on a listed company's board?

    Obtain written employer consent describing role, fee and time. Trap: disclosing after accepting.

  3. Payments from a broker

    An analyst gets monthly "commentary" payments from a broker and tells no one. Violation?

    Yes, IV(B). A conflict with the employer without consent.

Exam traps

  • Accepting verbal consent. The Standard requires written consent, and an email you can retrieve counts.
  • Thinking disclosure after the fact is enough. Consent comes before accepting.
  • Applying IV(B) to every modest client gift. Whether a gift threatens independence is I(B) territory.
  • Forgetting that benefits other than cash count: trips, board seats and consulting fees.

Checkpoint

3 exam-style questions. About 90 seconds each.

  1. 1A client offers a portfolio manager a weekend at a resort if the client's account beats its benchmark this year. The manager mentions it to her supervisor in a hallway conversation, and the supervisor says it is fine. Did the manager violate the Standards if she accepts?

  2. 2Which action is most consistent with Standard IV(B) before accepting a paid board seat at a listed company?

  3. 3A research analyst receives monthly payments from a broker for "market commentary" without telling the employer. This most likely violates:

Key takeaways

  • Outside pay or benefits that compete or conflict need written consent from all parties first.
  • The report states the nature, amount and duration of the arrangement.
  • Verbal or after-the-fact consent is not enough.

Questions about this lesson?

Where this comes back

Questions candidates ask

What is Standard IV(B) Additional Compensation Arrangements?

It forbids accepting gifts, benefits or pay that compete with, or could reasonably conflict with, your employer's interests unless you have written consent from all parties involved. Typical cases are client bonuses, outside directorships and payments from brokers.

Can a portfolio manager accept a bonus from a client?

Only with written consent. A client's performance bonus can tempt the manager to favor that account, so the employer must know the terms and agree in writing before the manager accepts.

Does email count as written consent?

Yes. Any communication that can be retrieved and documented counts, including email. A verbal approval, however senior the person, does not.

Spotted an error? Tell us and we will fix it.

  1. Standard I(A): Knowledge of the Law
  2. Standard I(B): Independence and Objectivity
  3. Standard I(C): Misrepresentation
  4. Standard I(D): Misconduct
  5. Standard I(E): Competence
  6. Standard II(A): Material Nonpublic Information
  7. Standard II(B): Market Manipulation
  8. Standard III(A): Loyalty, Prudence, and Care
  9. Standard III(B): Fair Dealing
  10. Standard III(C): Suitability
  11. Standard III(D): Performance Presentation
  12. Standard III(E): Preservation of Confidentiality
  13. Standard IV(A): Loyalty (to employers)
  14. Standard IV(B): Additional Compensation Arrangements
  15. Standard IV(C): Responsibilities of Supervisors
  16. Standard V(A): Diligence and Reasonable Basis
  17. Standard V(B): Communication with Clients and Prospective Clients
  18. Standard V(C): Record Retention
  19. Standard VI(A): Avoid or Disclose Conflicts
  20. Standard VI(B): Priority of Transactions
  21. Standard VI(C): Referral Fees
  22. Standard VII(A): Conduct as Participants in CFA Institute Programs
  23. Standard VII(B): Reference to CFA Institute, the CFA Designation, and the CFA Program

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Questions on Standard IV(B): Additional Compensation Arrangements

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