Cases on duties to employers and investment analysis
Employer cases test what you may do while employed and when leaving, which outside benefits need written consent, and what supervisors must do when they spot trouble. Analysis cases test whether research has a reasonable basis, whether clients were told about process, costs and risks, and whether records support it.
Before this: Cases on market integrity and duties to clients
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 IV and V. Expect a departing employee, a supervisor with weak procedures or a suspected violation, a research model change, and a strategy change not communicated. The usual wrong answers treat work you wrote as yours, delay action, or treat a process change as internal.
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 employer and analysis cases work?
Standard IV asks what you owe the firm that pays you. Standard V asks whether your research stands up and whether clients know what they are buying. Run the five-step method: the stem, the decisive fact, the Standard, the neighbors, then the most complete answer.
- Duties to employers Memorize Standard IV
- IV(A) Loyalty work product and client records belong to the employer
- IV(B) Additional compensation written consent for any outside benefit tied to the job
- IV(C) Responsibilities of supervisors procedures, prompt investigation, restriction
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- Investment analysis and recommendations Memorize Standard V
- V(A) Diligence and reasonable basis tested, understood, thorough
- V(B) Communication with clients process, costs, risks and changes
- V(C) Record retention support for the work, kept at least 7 years
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Try this 0 of 3
- Sort every move in The weekend model right first time
- Choose Grace's move in The compliance gap first time
- Name both Standards in The model switch first time
Case 1 of 3 The weekend model
Mei Tanaka, CFA, a quantitative analyst at Grayling Capital, builds a trading model at work, on Grayling's systems, refining it over several weekends. Planning to leave, she emails the code to her personal account "to keep a copy of my own work" and resigns two weeks later. She contacts no Grayling clients, has no non-compete agreement and never uses the code at her new firm.
Step 1 of 6 Violation or not?
Did Mei violate the Standards?
Read the case, then answer each step. 3 cases.
Case A: the weekend model
A quantitative analyst builds a trading model at work. Planning to leave, she emails the code to her personal account “to keep a copy of my own work” and resigns two weeks later. She does not contact any clients.
- Decisive fact: she copied the firm’s work product before leaving.
- Standard: IV(A) Loyalty. Work done in the job belongs to the employer, so copying is a breach even if never used.
- Neighbor rejected: V(C) is about keeping records, not taking them.
- Permitted: at her next job she may use her general skills and knowledge. She may not use the firm’s code.
Loyalty to the employer covers matters related to the job. It stops at law and ethics, and it ranks below clients and markets, but it covers the firm’s records, models and clients.
Case B: the compliance gap
A newly promoted head of a wealth team finds that advisers routinely trade client accounts without documented suitability reviews, and the firm has no written procedures.
- Decisive fact: there are no adequate procedures for her to supervise against.
- Standard: IV(C) Responsibilities of Supervisors.
- Most complete answer: decline in writing to accept supervisory responsibility until adequate procedures exist, recommend procedures to senior management, and document.
Supervisory responsibility means making reasonable efforts to prevent and detect violations by people under your control. Taking the role and promising to “fix it later” does not meet that duty.
Case C: the model switch
A fund manager quietly replaces his fundamental research with a third-party momentum model he has not tested, and keeps marketing the fund as “bottom-up value”.
- Decisive facts: he relies on a model he has not tested, and the process has changed without notice.
- Standards: V(A) Diligence and Reasonable Basis and V(B) Communication with Clients. The marketing is also a misrepresentation under I(C).
A reasonable basis means he understands the model, has tested it and can support the recommendation. Communication with clients means telling clients, promptly, about material changes in the process, as well as the costs and risks.
Case D: the client bonus
A portfolio manager’s best client offers her a bonus if the account beats its benchmark. The manager says yes over the phone, and her employer’s compliance officer says “sounds fine” at a meeting.
- Decisive fact: consent was verbal.
- Standard: IV(B) Additional Compensation Arrangements.
- Answer: disclose the arrangement to the employer in writing and obtain written consent before accepting.
Additional compensation arrangements are benefits or pay for services related to your job from someone other than your employer. They can make you favor one client over others, so the employer must agree in writing.
Case E: the missing files
An analyst’s firm cannot support a published target price because the supporting spreadsheets were deleted when a laptop was replaced.
- Decisive fact: the supporting records no longer exist.
- Standard: V(C) Record Retention.
Record retention requires records that support research and recommendations to be kept. The recommended minimum is 7 years, unless local rules require longer. A good policy also keeps the records off personal devices.
Exam tip Employer property stays. Supervisors act. Process changes are told. Written beats verbal.
Go deeper Group research and dissent
A member who disagrees with a group’s consensus rating is not required to remove their name from the report, provided the group’s view still has a reasonable basis. If the rating is unreasonable, the member should dissociate. The Standard treats a reasoned difference of opinion as normal, not as a violation. An answer that says “remove your name immediately” is a too-strict option.
Go deeper Leaving a firm: what you may and may not do
While still employed, you may register a company, find an office and plan, using your own time and resources. You may not solicit clients, copy lists or take models. After you leave, you may contact former clients from public sources or from memory unless a valid non-compete bars you. The quick sort: preparation and memory travel with you; files and solicitation do not.
Memorize this
MemorizeWhat each case type requires
| Case | Standard | Required action |
|---|---|---|
| Leaving a firm | IV(A) | Prepare on your own time. No soliciting or taking records, models or client lists |
| Bonus or gift tied to your job | IV(B) | Disclose to the employer and get written consent before accepting |
| Supervisor without procedures | IV(C) | Decline supervision in writing until adequate procedures exist |
| Suspected violation under you | IV(C) | Investigate promptly and restrict the activity until it is cleared |
| Research or model | V(A) | Understand and test it; reasonable basis and thorough analysis |
| Strategy or process change | V(B) | Tell clients promptly; process, costs and risks |
| Records | V(C) | Keep records that support the work; at least 7 years is the recommended minimum |
Memory hook Employer: what you build stays; supervisors act; process changes are told; records back it up.
Know it cold Planning is allowed, taking and soliciting are not. A supervisor does not wait for a complaint.
- Duties to employers Memorize Standard IV
- IV(A) Loyalty work product and client records belong to the employer
- IV(B) Additional compensation written consent for any outside benefit tied to the job
- IV(C) Responsibilities of supervisors procedures, prompt investigation, restriction
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- Investment analysis and recommendations Memorize Standard V
- V(A) Diligence and reasonable basis tested, understood, thorough
- V(B) Communication with clients process, costs, risks and changes
- V(C) Record retention support for the work, kept at least 7 years
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How it is asked
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Downloading before resigning
An analyst copies the firm's institutional client list to his phone but contacts nobody until he has left. Violation?
Yes, IV(A). Taking the records is the breach. Trap: "no solicitation while employed".
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Supervisor learns of a possible violation
A supervisor hears an analyst may be publishing reports using unverified data. Response?
Investigate promptly and restrict publishing until the review ends. Trap: remind and wait.
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Strategy change
A manager adds leverage but tells clients six months later in the annual report. Standard?
V(B). Trap: V(C) or III(B).
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Unproven model
A manager swaps research for an untested momentum model but markets "bottom-up value". Standards?
V(A) and V(B) (and I(C) for the marketing).
Exam traps
- "It's my own work, so I can take it." Models and files built on the job belong to the employer, even if never used.
- Accepting supervisory responsibility and planning to fix the procedures later. Decline in writing first.
- Thinking a process change is internal and need not be disclosed. A material change must reach clients promptly.
- Reminding the analyst and waiting for a complaint. A supervisor investigates and restricts.
- Taking a client bonus on verbal approval. IV(B) needs written consent from the employer.
Checkpoint
3 exam-style questions. About 90 seconds each.
1Before resigning, a research analyst downloads a list of the firm's institutional clients to his personal phone but does not contact them until after he leaves. Did he violate the Standards?
2A supervisor learns that one of her analysts may be publishing reports based on unverified data from an online forum. The supervisor's most appropriate response is to:
3A manager changes the fund's strategy to include leverage but tells clients only in the annual report six months later. The Standard most likely violated is:
Key takeaways
- Work product and client lists belong to the employer.
- Supervisors investigate and restrict. Without adequate procedures, they decline supervision in writing.
- Untested models lack a reasonable basis. Material process changes must be disclosed promptly.
- Outside pay tied to your job needs written consent.
All Ethical and Professional Standards formulas, every lesson
Questions about this lesson?
Where this comes back
- Cases on conflicts of interest and CFA responsibilities Ethics Application
Questions candidates ask
Can I take my own work when I leave a firm?
No. Models, code, research and client records created in your job belong to the employer, even work you wrote yourself, unless the firm agrees in writing. You may use your skills, general knowledge and public information at your next job.
What should a supervisor do about a possible violation?
Respond promptly, investigate and restrict the activity while the review runs. Where the firm has no adequate procedures, decline supervisory responsibility in writing and recommend that senior management adopt them. Document each step.
Do I need to tell clients about a change in investment process?
Yes. A material change in process, such as adding leverage or switching from fundamental research to a quantitative model, must be communicated to clients promptly. Marketing that still describes the old process is misleading.
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