Ethics Question

CFA Level II
#1

Let’s say for the following examples John is currently working as a equity analyst for an investment firm.

a) He also works part time as a swim coach every wednesday, saturday and sunday for 2 hours each every week.

b) He works part time as bartender every night in a local bar after work to compensate for his low pay.

c) He provides infrequent personal consultation to his close friends and relatives and receives a nominal fee each time.

d) He provide infrequent personal consultation to his close friends and relatives and receive non monetary benefits in return.

e) He sits on the board of his country club and receives compensation for his advice, not relating to investments.

f) He provides free advice to a mutual fund.

Which of the above examples is a violation of loyalty to employer and of additional compensation. Does he need to disclose to his employer?

#2

If the advice competes with the employer, it violates loyalty. Additional compensation is not an issue since a client of the firm is not offering compensation.

#3

Where you got this example from?

a)No

b)Depends, if his job as bartender would impair his duty as an analyst (I think the CFAI book mentioned an example of an analyst running for mayor of some town, the book states if the analyst has to devote substantial time that impair his duty, then he has to report).

c)Yes but not sure

d)Yes but not sure (even though nonmonetary and montary compensation are treated the same)

e)Again depends, reasoning is the same as b)

f) Refer to the post above, even if its free, if the advice competes with the employer, then he violated his duty.

My two cents, I hope somebody could shed some light on it too!

#4

e should be be okay since it is not competing against employer. (it has nothing to do with investment advice)

#5

my 2 cents: personal consultation, if not related to exmployer business should be ok

#6

A,b,e should be ok because there is no potential conflict of interest involved

#7

Thanks everyone for your inputs. The examples are provided by me. I think Garnopolis422 summarises this very well:

Loyalty to Employer : If activities compete or potentially compete with your employer and written approval is not obtained, then it is a violation regardless if compensated or not. And if any activities that does not compete but impairs duty to employer (eg. too much late night resulting in poor performance at work), this is also a violation.

Additional Compensation : Is only applicable to additional compensation related to work under employer and does not cover non-work related activites (Eg. receiving payment for being swim coach).

Thus my answers will be:

a) He also works part time as a swim coach every wednesday, saturday and sunday for 2 hours each every week. No violation of either standard since this does not affect his work with employer. b) He works part time as bartender every night in a local bar after work to compensate for his low pay. Working every night after work likely deprive employer of his skills (because he may be too tired to work efficiently due to lack of rest).This is a violation of loyalty but not additional compensation. c) He provides infrequent personal consultation to his close friends and relatives and receives a nominal fee each time. This competes with his employer and is a violation unless he has prior written permission from employer to conduct such personal consultation with or without compensation. This is a violation of loyalty to but not additional compensation. d) He provide infrequent personal consultation to his close friends and relatives and receive non monetary benefits in return. Similar to © e) He sits on the board of his country club and receives compensation for his advice, not relating to investments. He likely do not need to be available for board meeting or activities on a daily basis or very frequently. And since there is no likelihood of competing with employer, this is not a violation of both standards. f) He provides free advice to a mutual fund. This is a violation of loyalty as it competes with employer but not a violation of compensation. Feel free to comment please.