Members and Candidates must make full and fair disclosure of all matters
that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.
Best practice is to avoid conflicts of interest or the appearance of conflicts whenever possible. When they cannot be avoided they should be disclosed clearly and completely.
Employers should be told of any potential conflicts that would interfere with rendering unbiased investment advice or cause a member to act in a way that is not the employer’s best interest. In many cases employers prohibit the potential causes of conflicts, such as owning a stock being recommended or sitting on an outside board.
In addition, clients should be informed of any potential conflicts relating to the employer’s business model. Market-making activities, incentive structures, and other financial incentives are included.
Companies should disclose compensation arrangements that could create conflicts of interest.
The CFA Institute Standards of Practice Handbook provides several examples of potential violations related to conflict disclosure.
- the firm’s investment banking relationship with the covered company
- board membership on the covered company or its subsidiaries by firm executives
- stock or option ownership in the covered company by the analyst or a close family member
- a bonus system based on quarterly performance
- incentives to add a company to client portfolios
- personal relationships with the covered company’s officers