How should I handle conflicts of interest under Standard VI?

Question

AcadiFi · Accepted Answer

Standard VI requires transparency about anything that could bias your professional judgment. Three sub-standards:

**Standard VI(A) — Disclosure of Conflicts:**
You must make full and fair disclosure of all matters that could impair your independence and objectivity or interfere with your duties to clients.

**What must be disclosed:**
- Ownership of securities you recommend ("I own shares of this company")
- Board memberships or business relationships with covered companies
- Compensation arrangements tied to recommendations
- Family relationships that create conflicts
- Any financial interest in a recommended transaction

**Standard VI(B) — Priority of Transactions:**
Transactions for clients take priority over transactions for the employer, which take priority over your personal transactions.

```mermaid
flowchart TD
    A[Transaction Priority Order]
    A --> B["1. Client Transactions (FIRST)"]
    B --> C["2. Employer Transactions"]
    C --> D["3. Personal Transactions (LAST)"]
    D --> E[Must not front-run clients]
    D --> F[Pre-clearance may be required]
    D --> G[Blackout periods apply]
```

**Front-running is the classic violation:**
You learn your firm is about to issue a "buy" recommendation on a stock. Before the recommendation is published, you buy shares for your personal account. This is front-running and violates Standard VI(B).

**Standard VI(C) — Referral Fees:**
You must disclose to clients any compensation or benefit received for referring them to other professionals, and vice versa.

**Example:** Diego, a portfolio manager, refers clients to a specific tax attorney who pays Diego $500 per referral. Diego must disclose this fee arrangement to every referred client so they can evaluate whether the referral is biased.

**Practical tips for compliance:**
1. Maintain a personal trading log
2. Pre-clear all personal trades through compliance
3. Observe blackout periods around major recommendations
4. Disclose all outside business activities to your employer
5. When in doubt, disclose

**Exam tip:** The exam tests whether you can identify a conflict that should be disclosed. Many scenarios involve analysts who honestly believe they are unbiased — but the standard requires disclosure of the conflict itself, regardless of whether it actually affects judgment.

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How should I handle conflicts of interest under Standard VI?

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