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CFA® Level II · Ethical and Professional Standards · free lesson
Guidance for Standard IV: Duties to Employers
Employers rely on their people to use their skills for the firm, protect its information and supervise others properly. Standard IV sets out those duties: loyalty, including the rules for leaving and for whistleblowing; written consent for outside compensation; and the supervisor's obligation to make reasonable efforts to prevent and detect violations. Level II vignettes often combine a departing employee, a client's tempting offer and a supervisor who reacts too slowly. This module explains each sub-standard and the policies firms use to make them work.
What you will learn
1. Apply the duty of loyalty to an employer, including when preparing to leave and when acting as a whistleblower.
- Act for the employer's benefit, protect its confidential information and do not compete without consent.
- Preparing to leave is allowed; soliciting clients or staff and taking records or models before leaving is not.
- After leaving, former clients can be contacted from public sources unless an agreement forbids it.
- Knowledge in memory belongs to the member; documents, data and models belong to the employer.
- Whistleblowing to protect clients or market integrity is not disloyalty; doing it for personal gain is not protected.
2. Determine when additional compensation arrangements need written consent.
- Outside compensation that competes with or could conflict with the employer's interest needs written consent from all parties involved.
- Consent must be written (email counts), obtained in advance, and based on the nature, amount and duration of the arrangement.
- Client bonuses tied to future performance are the classic IV(B) case.
- Paid board seats and consulting need consent and usually conflict disclosure under VI(A).
- Unpaid, unrelated activities generally fall outside IV(B), subject to firm policy.
3. Explain the responsibilities of supervisors to establish and enforce compliance systems.
- Supervisors must make reasonable efforts to ensure compliance by everyone they supervise, members or not.
- Tasks can be delegated; responsibility cannot.
- If compliance procedures are inadequate, push for fixes and decline supervisory responsibility in writing until they exist.
- On a red flag: investigate promptly and restrict or monitor the employee meanwhile; assurances are not enough.
- A supervisor with adequate systems who acted diligently is not liable for a concealed violation.
4. Recommend procedures that help prevent violations of Standard IV.
- Competition, termination, whistleblowing and social media policies set clear boundaries for IV(A).
- Pre-approval with standard written consent forms and a register handles IV(B).
- Separate a plain-language code of ethics from detailed compliance procedures.
- Procedures should name the compliance officer, the supervisory hierarchy and reporting routes, and be backed by training.
- Monitor, test, investigate promptly and discipline consistently; avoid incentives that reward misconduct.
Module at a glance
- Act for the employer's benefit, protect its confidential information and do not compete without consent.
- You may prepare to leave, but not solicit clients or staff, or take records, while still employed.
- After leaving, contact former clients from public sources unless an agreement forbids it.
- Whistleblowing to protect clients or markets is consistent with loyalty; doing it for personal gain is not.
- Outside compensation that could conflict with the employer's interest needs prior written consent from all parties involved.
- Supervisors must make reasonable efforts, decline responsibility in writing if procedures are inadequate, and investigate red flags promptly.
- Effective programmes combine a code of ethics, clear procedures, a named compliance officer, training, monitoring and consistent discipline.
This free module has 4 lessons, 15 practice questions with full explanations.