Guidance for Standard IV: Duties to Employers

CFA Level III · CFA · 5 min read · Updated: Sep 7, 2026

Introduction to Standard IV: Duties to Employers

Welcome to one of the most practical sections of the CFA Level III Ethics curriculum! While Standard III focused on your relationship with your clients, Standard IV turns the spotlight on your "Home Team"—your employer.

Think of this Standard as the rules of engagement for being a professional "team player." It ensures that you don't use your employer's resources for personal gain, that you don't leave them in the lurch, and that if you are in a leadership position, you are actually leading. For the Level III exam, you need to be able to spot when a member's actions transition from "highly ambitious" to "unethical."

Standard IV(A): Loyalty

The core idea of Loyalty is that in matters related to your employment, you must act for the benefit of your employer and not deprive them of the advantage of your skills and abilities. You shouldn't divulge confidential information or otherwise cause harm to your firm.

1. Independent Practice (The "Side Hustle")

If you want to start a side business that competes with your employer, you must get written consent from both your employer and the person/entity you are doing the work for.
Analogy: Imagine you work for a high-end bakery. You can’t start selling your own cakes to the bakery's customers on the weekend unless your boss says it's okay in writing.

2. Leaving the Firm

This is a "hot topic" for exam vignettes. You are allowed to make preparations to leave (like looking for a new job or renting office space), but you cannot solicit your current employer's clients or take proprietary materials while you are still employed.
What you CAN take: Your brain (skills and experience).
What you CANNOT take: Client lists, trade secrets, or computer files (unless you have permission).

3. Whistleblowing

Does loyalty mean you have to stay silent if your firm is doing something illegal? No. Your duty to protect the integrity of the capital markets and follow the Code of Ethics always comes before your duty to your employer. If you report illegal activity to protect the public or clients, you are not violating Standard IV(A).

Quick Review: Loyalty doesn't mean you are a "slave" to your firm, but it does mean you can't compete with them behind their back or walk away with their "secret sauce."

Standard IV(B): Additional Compensation Arrangements

This Standard is about "side pay." You must not 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.

Why is this important?

If a client offers you a luxury vacation if their portfolio hits a \(15\%\) return, you might be tempted to take excessive risks to get that vacation. Your employer needs to know about this so they can monitor your behavior.

Key Requirements:

1. The consent must be in writing (email counts).
2. It must be obtained before you accept the benefit.
3. This covers both direct cash and indirect benefits (like use of a private jet).

Common Mistake: Don't confuse this with Standard I(B) Independence and Objectivity. Standard I(B) is about gifts that might influence your judgment. Standard IV(B) is specifically about getting paid by a third party for work your employer is already paying you to do.

Standard IV(C): Responsibilities of Supervisors

If you are a boss, you are responsible for everyone under your "command." You must make reasonable efforts to ensure that anyone you supervise complies with laws, regulations, and the Code and Standards.

The Two-Step Approach to Supervision:

1. Establish: You must have a written system of compliance procedures.
2. Enforce: You must monitor your staff and ensure they are actually following those procedures.

What if you find a violation?

If you discover a subordinate has broken the rules, you must:
- Investigate: Find out what happened.
- Mitigate: Limit the employee’s activities (e.g., take away their trading authority) while the investigation is ongoing.
- Report: Follow the firm's internal reporting chain.

Did you know? You can't just say "I'm too busy to check." If your firm’s compliance system is weak, you should decline supervisory responsibility in writing until the firm fixes it.

Summary Table for Standard IV

Standard IV(A) Loyalty
Focus: Protecting the employer's interests/property.
Key Action: Don't compete or steal clients while employed.

Standard IV(B) Additional Comp
Focus: Third-party payments.
Key Action: Get written permission from everyone first.

Standard IV(C) Supervision
Focus: Managing others.
Key Action: Have a system and actually use it.

Key Takeaways for Level III Candidates

Consent must be written: For side work or extra pay, verbal "it's okay" from a manager is usually not enough for a pass on the exam.
Preparing vs. Competing: You can plan your next career move, but you can't start poaching clients until you've cleared your desk and walked out the door (subject to non-compete agreements).
Supervisors aren't automatically guilty: If a supervisor has a great system and monitors it well, but an employee goes to extreme lengths to hide a crime, the supervisor might not be in violation. The standard is "reasonable effort."

Don't worry if these seem like common sense—on the exam, the challenge is identifying the exact moment someone crosses the line in a complex story. Just ask yourself: "Is this fair to the firm that is paying their salary?"

For more on professional conduct, see the other chapters in this section, such as Guidance for Standard III: Duties to Clients or Asset Manager Code of Professional Conduct.

Quick check

Can you answer these now?

Open each question to check the key ideas from this chapter.

What is the primary requirement of Standard IV(A): Loyalty?

Members must act for the benefit of their employer, avoid harming the firm, and refrain from divulging confidential information.

What is required before a member can engage in independent practice that competes with their employer?

The member must obtain written consent from both their employer and the person or entity for whom they are doing the work.

When leaving a firm, what actions are permitted versus prohibited regarding client solicitation and proprietary materials?

You may make preparations to leave (e.g., renting office space), but you cannot solicit clients or take proprietary materials like client lists or computer files while still employed.

Does a member's duty of loyalty to their employer prevent them from whistleblowing?

No; the duty to protect the integrity of capital markets and the Code of Ethics overrides the duty to the employer in cases of illegal activity.

Under Standard IV(B), what is required before accepting additional compensation from third parties?

Members must obtain written consent from all parties involved, including their employer and the third party, before accepting the benefit.

How does Standard IV(B) differ from Standard I(B) regarding gifts?

Standard I(B) focuses on independence and objectivity, while IV(B) focuses on third-party payments for work the employer is already paying you to do.

What are the two primary steps a supervisor must take to satisfy Standard IV(C)?

A supervisor must (1) establish a written system of compliance procedures and (2) make reasonable efforts to enforce those procedures.

What actions must a supervisor take upon discovering a subordinate's violation?

The supervisor must investigate the violation, mitigate further harm (e.g., by limiting the employee's activities), and report it through the proper internal channels.

Is a supervisor always in violation if a subordinate commits an unethical act?

No; the standard is "reasonable effort." If a robust system was in place and monitored, the supervisor may not be responsible for a worker's extreme efforts to circumvent it.

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