Guidance for Standard IV: Duties to Employers

Portfolio managers owe duties to the firms that employ them as well as to clients. Standard IV covers loyalty to the employer, including when staff leave for competitors or report wrongdoing, outside compensation that could pull them in another direction, and the duties of everyone who supervises others. At Level III, the emphasis is on the procedures firms need and on the precise steps a supervisor must take when something goes wrong.

Start this lesson free Practice questions

What you will learn

1. Apply the duty of loyalty to an employer, including when preparing to leave, when contacting clients afterwards and when blowing the whistle.

Act for the employer's benefit, but never at the expense of the law, clients or the Standards.
Competing outside work needs the employer's consent after full description of the work and pay.
Preparing to leave is allowed; soliciting clients and taking records before leaving is not.
After leaving, contact former clients from memory or public sources unless a non-compete or non-solicitation agreement applies.
Whistleblowing to protect clients or markets is not a breach of loyalty; doing it for personal gain is.

2. Determine when additional compensation arrangements must be disclosed to and approved by the employer, and how consent should be obtained.

Arrangements that compete with or may conflict with the employer's interest need written consent from all parties before acceptance.
Client bonuses tied to performance, paid board seats and third-party payments are typical cases.
Disclose nature, amount, duration and services in writing; oral or vague approval is insufficient.
Consent does not excuse unfair treatment of other clients or unsuitable risk-taking.
Modest thank-you gifts fall under gift policy; performance-linked or substantial benefits fall under IV(B).

3. Explain the responsibilities of supervisors, recommend effective compliance systems and determine the right response to suspected violations.

Supervisors must make reasonable efforts to ensure that everyone they supervise, members or not, complies with the law and the Standards.
Reasonable efforts require an adequate, communicated and enforced compliance system.
If procedures are inadequate and management will not fix them, decline supervisory responsibility in writing.
On a suspected violation: investigate promptly, restrict or increase supervision of the employee, prevent recurrence, report as required.
Delegating tasks, including to algorithms or outsourced providers, does not delegate responsibility.

Module at a glance

IV(A): act for the employer's benefit, but never at the expense of the law, clients or the Standards.
Preparing to leave is permitted; soliciting clients and taking records while employed is not.
After leaving, use memory and public sources to contact clients unless a restrictive agreement applies.
Whistleblowing to protect clients or markets is consistent with the Standards; employers must not gag reports to regulators.
IV(B): outside compensation that may conflict with the employer's interest needs written consent before acceptance.
IV(C): supervisors need an adequate, enforced compliance system and must investigate and restrict when violations are suspected.
If management refuses reasonable procedures, decline supervisory responsibility in writing.

This free module has 3 lessons, 14 practice questions with full explanations.

Start the lesson