Page 33 - FINAL CFA II SLIDES JUNE 2019 DAY 1

READINGS 1 AND 2: CFA INSTITUTE CODE OF ETHICS AND STANDARDS OF
MODULE 2.7: PROFESSIONAL CONDUCT GUIDANCE FOR STANDARDS I–VII

STANDARDS IV(A), IV(B), AND IV(C)
IV(B) Additional Compensation Arrangements:

Guidance: Compensation includes direct and indirect compensation from a client and other benefits received from third parties. Written consent
from a member’s employer includes email communication. Members and candidates who are hired to work part time should discuss any
arrangements that may compete with their employer’s interest at the time they are hired, and abide by any limitations their employer identifies.

Recommended Procedures for Compliance
Make an immediate written report to employer detailing any proposed compensation and services, if additional to that provided by employer.
Details including any performance incentives should be verified by the offering party.

1
Application of Standard IV(B) Additional Compensation Arrangements

Vignette 1:
Geoff Whitman, a portfolio analyst for Adams Trust Company, manages the account of Carol Cochran, a client. Whitman is paid a salary by his employer,
and Cochran pays the trust company a standard fee based on the market value of assets in her portfolio. Cochran proposes to Whitman that “any year
that my portfolio achieves at least a 15% return before taxes, you and your wife can fly to Monaco at my expense and use my condominium during the
third week of January.” Whitman does not inform his employer of the arrangement and vacations in Monaco the following January as Cochran’s guest.

Analysis:
• Whitman violated Standard IV(B) by failing to inform his employer in writing of this supplemental, contingent compensation arrangement. The
nature of the arrangement could have resulted in partiality to Cochran’s account, which could have detracted from Whitman’s performance with
respect to other accounts he handles for Adams Trust.

Action/s:
• Whitman must obtain the consent of his employer to accept such a supplemental benefit.

Review example 2!