Welcome to Standard IV: Duties to Employers

In your journey toward the CFA charter, you have already learned that the client comes first (Standard III). However, you also have a professional relationship with your employer. Standard IV: Duties to Employers outlines how to balance your personal career goals and side projects with the legal and ethical obligations you owe to the firm that employs you.

This chapter is divided into three key areas: Loyalty, Additional Compensation, and Responsibilities of Supervisors. Let’s dive in!


Standard IV(A): Loyalty

The core idea of Loyalty is that you must act for the benefit of your employer and not deprive them of your skills, divulge confidential information, or otherwise cause them harm. However, it is important to remember that this loyalty is not "blind." Your duty to the integrity of the capital markets and the Code of Ethics always stays above your duty to your employer.

1. Independent Practice (Side Hustles)

If you want to start a side business or take on independent work that competes with your employer, you must get written consent from your employer before you begin. This includes describing the types of services you will perform, the expected duration, and the compensation.

Example: If you are an equity analyst at a bank and want to write a paid investment blog on the weekends, you need permission because this could compete with your bank’s research department.

2. Leaving the Firm

This is a high-frequency topic on the CFA exam! When you decide to move to a new job, you still have obligations:

  • What you CANNOT take: Client lists, proprietary models, or any files (digital or paper) belonging to the firm. Even if you created the model yourself, it belongs to the employer.
  • What you CAN take: Your brain! The skills, experience, and knowledge you gained are yours to keep.
  • Solicitation: You generally cannot start "poaching" clients from your old firm until your employment officially ends, unless your employment contract allows it.

3. Whistleblowing

Don't worry if this seems counterintuitive: Your loyalty to your employer does not require you to protect them if they are breaking the law. If an employer is engaging in illegal or unethical activity, your primary obligation is to protect the integrity of the markets. Whistleblowing is permitted (and encouraged) in these specific scenarios.

Quick Review: Loyalty means putting the firm's interests above your own, but never above the law or the CFA Standards.


Standard IV(B): Additional Compensation Arrangements

This standard is all about conflicts of interest regarding "extra" pay. You cannot accept gifts, benefits, or compensation that creates a conflict of interest with your employer’s interest unless you obtain written consent from all parties involved.

The "Written Permission" Rule

If a client offers you a bonus based on the future performance of their account, or if a third party offers you a kickback for using their services, you must:

  1. Disclose the offer to your employer.
  2. Get written permission from your employer to accept it.
  3. Get written permission from the person offering the money (though usually, they are the ones initiating it).

Key Difference: Standard III(E) (covered in the previous chapter) deals with disclosing conflicts to clients. Standard IV(B) is specifically about getting permission from your employer so they know your judgment isn't being "bought" by someone else.

Did you know? This includes more than just cash. It covers expensive tickets to sporting events, luxury travel, or use of a client’s vacation home.


Standard IV(C): Responsibilities of Supervisors

If you are in a position of authority, you have a duty to ensure that anyone under your supervision follows the laws, regulations, and the CFA Code and Standards.

What makes a good supervisor?

You don't have to be perfect, but you must make a reasonable effort to prevent violations. This includes:

  • Establishing a System: You must have written compliance procedures that are easy to understand and follow.
  • Education: You must ensure your staff is trained on these procedures.
  • Monitoring: You must actively check for "red flags" or suspicious behavior.

What if a violation occurs?

If you discover a subordinate is breaking the rules, simply telling them to stop is not enough. A supervisor must:

  1. Investigate: Thoroughly look into the extent of the violation.
  2. Limit Activity: Restrict the employee’s activities (e.g., take them off the trading desk) while the investigation is ongoing.
  3. Fix the System: If the violation happened because the rules were unclear, you must update the procedures.

Pro-Tip: If you are offered a supervisory position but the firm has no compliance system in place, you should decline the supervisory part of the job in writing until the firm adopts an adequate system.


Key Takeaways for Standard IV

Standard IV(A): Loyalty
Don't steal clients or files when leaving. Get permission for side jobs. Whistleblow if the firm is illegal.

Standard IV(B): Additional Compensation
Get written permission from your employer before taking bonuses or gifts from clients or third parties.

Standard IV(C): Responsibilities of Supervisors
You must have a system in place to prevent and detect violations. If you find a problem, investigate and limit the employee's power immediately.


Common Mistakes to Avoid

  • Thinking "Loyalty" means staying silent: If the firm is hurting clients or the market, the Standards require you to speak up.
  • Taking "my" models: If you built a spreadsheet on company time using company data, it is not yours. Taking it to a new firm is a violation.
  • Oral permission: For additional compensation (IV B), a verbal "okay" from your boss is not enough. It must be in writing.

Note: For further application of these rules in case studies, please refer to the "Application of the Code and Standards: Level I" chapter.