Conflict of interest

An interest or relationship that could reasonably be expected to impair independence or interfere with duties to clients or employer. It must be avoided or fully and fairly disclosed, and avoiding it is preferred where reasonably possible.

Where you will meet it

Conflict of interest appears in 6 learning outcomes on the CFA syllabus. A few of them:

• Put the Additional Compensation Arrangements standard, IV(B), into practice
  CFA Level I · Ethical and Professional Standards

  “Members must not accept gifts, benefits, compensation or consideration that competes with, or might reasonably be expected to create a conflict of interest with, their employer's interest, unless they obtain written consent from all parties involved.”

• Set out what goes into a company research report, including one that initiates coverage
  CFA Level I · Equity Investments

  “A detailed company research report usually opens with a summary of the recommendation, target price and key reasons, followed by the investment thesis, a description of the business and its industry, financial analysis and forecasts, the valuation and how it was reached, and the main risks to the view, with disclosures of conflicts of interest.”

• Explain what the Code and Standards expect of members ethically, covering every standard and its subsections
  CFA Level II · Ethical and Professional Standards

  “Investment Analysis covers reasonable basis, communication and records, Conflicts of Interest covers avoiding or disclosing conflicts, priority of transactions and referral fees, and the seventh group is Responsibilities as a Member or Candidate.”

• Weigh the pros and cons of holding real estate via listed securities rather than private vehicles
  CFA Level II · Alternative Investments

  “Against that, share prices move with the stock market and look far more volatile than appraised values, investors cannot control property decisions, a listed structure has its own costs, REITs cannot pass tax losses through to shareholders, distribution rules limit retained earnings so growth needs fresh capital, and structures such as UPREITs can create conflicts of interest.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary