Cases on conflicts of interest and CFA responsibilities
Conflict cases ask whether a conflict could have been avoided and, if not, whether it was disclosed prominently in plain language; whether clients traded first; and whether referral benefits were disclosed before engagement. CFA cases ask whether exam content stayed confidential and the designation was described accurately.
Before this: Cases on duties to employers and investment analysis
On the exam
- Evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct
- Explain how the practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics and Standards of Professional Conduct
Evaluate and explain conduct under Standards VI and VII. Expect a family or board conflict where avoiding is easy, a personal trade ahead of a client, a referral fee mentioned only on request, a post about exam content and a résumé line about candidacy. The usual wrong answers disclose when avoiding is easy or treat a good fill as an excuse.
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.
How do conflict and CFA cases work?
Standard VI asks whether a conflict could have been avoided, and if not, whether it was disclosed. Standard VII asks whether you protected the CFA Program and described it accurately. Use the five-step method.
- Conflicts of interest Memorize Standard VI
- VI(A) Avoid or Disclose Conflicts avoid if reasonable, otherwise disclose prominently
- VI(B) Priority of Transactions clients, employer, then personal
- VI(C) Referral Fees disclose before the engagement
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- Responsibilities as a CFA Institute member or candidate Memorize Standard VII
- VII(A) Conduct in CFA Institute programs exam integrity and confidentiality
- VII(B) Reference to the CFA designation accurate, no exaggeration
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Try this 0 of 3
- Choose avoid over disclose in The family company first time
- Put Pavel's trades in order first time
- Pick the right headline in The résumé line first time
Case 1 of 3 The family company
Laila Haddad, CFA, is an equity analyst at Thornbury Research. She is asked to start coverage of Corvane Systems, where her husband is chief operating officer. Thornbury has two other analysts covering the same sector who could easily take it on. Laila offers to write the report with a clear disclosure of her husband's role on the first page.
Step 1 of 4 Rung 1: can it be avoided?
Can the conflict reasonably be avoided?
Read the case, then answer each step. 3 cases.
Case A: the family company
An analyst is asked to initiate coverage of a company where her spouse is a senior executive. Her firm could easily assign another analyst.
- Decisive fact: the conflict can be avoided easily.
- Standard: VI(A) Avoid or Disclose Conflicts. Neighbor: I(B) covers the threat to her objectivity.
- Answer: reassign coverage. Disclosure alone is not the best answer when avoidance is easy.
Avoid or disclose conflicts is the wording since the 2023 revisions. Where a conflict cannot reasonably be avoided, disclose it fully, prominently and in plain language to the employer, clients and prospects.
Case B: the pre-trade purchase
A trader receives a large client buy order for a mid-cap stock, buys 500 shares for his own account, then executes the client order, and the price rises.
- Decisive fact: his trade came before the client’s.
- Standard: VI(B) Priority of Transactions. Neighbor: III(B) concerns client against client, which is not the issue.
- Answer: violation, called front running. A firm with preclearance and blackout rules would have blocked it.
Priority of transactions puts clients and the employer ahead of the member. The client’s fill price does not matter. The order of the trades does.
Case C: the referral
A wealth adviser is paid by a developer for each client she introduces to its scheme. She tells clients only if they ask.
- Decisive fact: disclosure is not made before the engagement.
- Standard: VI(C) Referral Fees.
- Answer: disclose to her employer and to each client before the services are provided.
Referral fees can bias advice. Clients cannot weigh the recommendation without knowing about them, so the timing is the test.
Case D: the résumé line
A candidate who passed Level I last year and has not enrolled for Level II lists “CFA Level II Candidate” on a networking profile.
- Decisive fact: she is not enrolled for an exam, and the wording attaches a level to the designation.
- Standard: VII(B) Reference to CFA Institute, the CFA Designation and the CFA Program.
- Answer: she may write “Passed the Level I CFA exam”.
A reference to the CFA designation must be accurate and must not suggest a partial designation. Candidacy rests on enrollment: a person is a candidate while enrolled to sit a specified exam, or while awaiting the results of one already sat.
Case E: the exam post
A candidate posts after the exam: “No questions on derivatives this year, loads on fixed income.”
- Decisive fact: the post reveals which topics were and were not tested (derivatives and fixed income).
- Standard: VII(A) Conduct as Participants in CFA Institute Programs.
Conduct in CFA Institute programs covers cheating, and also sharing exam content, even in general terms, with other candidates.
Exam tip When “avoid” and “disclose” are both offered, ask whether the conflict can be avoided easily. If yes, avoid is the answer.
Go deeper Referrals between departments
Referral arrangements inside one firm count too. If a bank’s private-wealth team receives a credit from the firm’s brokerage for introducing clients, VI(C) requires disclosure of that credit to the clients. The Standard does not distinguish between an outside payment and an internal one.
Go deeper Exam-discussion posts
Posts on forums and social media are the common trap for VII(A). Discussing study technique is fine. Saying what was, or was not, on the paper is not, even if you do not quote a question.
Memorize this
MemorizeWhat each case type requires
| Case | Standard | Required action |
|---|---|---|
| Conflict that can be avoided easily | VI(A) | Avoid it (reassign, recuse). Disclosure alone is the weaker answer |
| Unavoidable conflict | VI(A) | Disclose fully, prominently, in plain language |
| Personal trade and client order | VI(B) | Clients and employer first, then the member. Preclearance and blackout rules help |
| Referral benefit | VI(C) | Disclose to the employer, the client and the prospect before services are provided |
| Exam content | VII(A) | Do not disclose what was tested or not tested, or cheat |
| Describing candidacy or designation | VII(B) | "Passed the Level I CFA exam" is fine; no "CFA Level II" or false candidacy |
Memory hook Avoid when you can, clients trade first, disclose referral pay before the engagement, describe the CFA program exactly.
Know it cold Avoid beats disclose when avoiding is easy. Prominent beats buried.
MemorizeCFA designation, quick reference
| Statement | Verdict |
|---|---|
| "Passed the Level I CFA exam" (true) | Proper |
| "CFA Level II Candidate" without being enrolled for that exam | Improper |
| "CFA Level II" as if it were a title | Improper: suggests a partial designation |
| "Level II candidate for the CFA designation" | Proper if enrolled for that exam (or awaiting its results) |
Memory hook Say what happened, never what you might become. Candidacy needs enrollment for an exam.
Know it cold No claim of superior performance because of the designation.
- Conflicts of interest Memorize Standard VI
- VI(A) Avoid or Disclose Conflicts avoid if reasonable, otherwise disclose prominently
- VI(B) Priority of Transactions clients, employer, then personal
- VI(C) Referral Fees disclose before the engagement
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- Responsibilities as a CFA Institute member or candidate Memorize Standard VII
- VII(A) Conduct in CFA Institute programs exam integrity and confidentiality
- VII(B) Reference to the CFA designation accurate, no exaggeration
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How it is asked
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Referral fee mentioned only on request
An adviser gets a fee for each client she introduces to a developer scheme and discloses it only if asked.
Violation, VI(C). Disclose before engagement. Trap: "she would disclose on request".
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Avoidable conflict
A manager sits on a company board and is asked to buy its shares for clients; recusal is easy.
Avoid: recuse and disclose the board role to the employer. Trap: buy and disclose in a footnote.
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Exam discussion
A candidate posts "No questions on derivatives this year, loads on fixed income".
VII(A). Trap: VII(B) or I(C).
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Personal trade first
A trader buys 500 shares for himself, then executes a client buy order. Price rises.
Violation, VI(B). Front running. Trap: "the client got a good fill".
Exam traps
- Picking "disclose" when "avoid" is easy and available.
- Thinking a personal trade is fine if the client got a good fill. The order matters, not the outcome.
- Thinking "passed Level I" is improper. It is fine if true.
- Disclosing a referral fee only when asked. It has to come before the services.
- Treating a post that says which topics were not tested as harmless chatter.
Checkpoint
3 exam-style questions. About 90 seconds each.
1A wealth adviser receives a fee from a property developer for every client she introduces to its investment scheme. She mentions it only if clients ask. Did she violate the Standards?
2A portfolio manager sits on the board of a small company and is asked to buy its shares for client accounts. The manager could easily recuse himself. The most appropriate action is to:
3A candidate posts after the exam: "No questions on derivatives this year, loads on fixed income." This most likely violates:
Key takeaways
- Avoid conflicts when reasonably possible. Otherwise disclose prominently and plainly.
- Client and employer trades come before personal trades.
- Disclose referral benefits before engagement.
- Keep exam content confidential and describe the designation and candidacy exactly.
All Ethical and Professional Standards formulas, every lesson
Questions about this lesson?
Where this comes back
- Basics of Portfolio Planning and Construction Portfolio Construction
- Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits Corporate Finance
Questions candidates ask
What are examples of conflicts of interest under the CFA Standards?
Covering a company where your spouse is an executive, sitting on the board of a company you buy for clients, being paid for referrals, or trading personally ahead of clients. Avoid them when you reasonably can; otherwise disclose them prominently and plainly.
Is front running a violation of the CFA Standards?
Yes. Trading for yourself before a client or employer order breaches Standard VI(B). Clients and the employer come first, then the member. Preclearance, blackout windows and reporting of personal trades help prevent it.
How should I list the CFA Program on my résumé?
Be exact. "Passed the Level I CFA exam" is proper if true. You may call yourself a candidate for the CFA designation only while enrolled for an upcoming exam or awaiting its results. Do not write "CFA Level II" as if it were a title, and do not claim the designation until you are a charterholder.
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