What exactly does Standard VI(A) on disclosure of conflicts require?

Question

AcadiFi · Accepted Answer

Standard VI(A) — Disclosure of Conflicts — requires CFA members and candidates to disclose all matters that could reasonably be expected to impair independence and objectivity or interfere with respective duties to clients, prospective clients, and employers.

What must be disclosed:

- Ownership positions (directly or indirectly) in securities being recommended.
- Board memberships or consulting relationships with issuers.
- Compensation arrangements, including bonuses tied to specific recommendations.
- Brokerage relationships and soft-dollar arrangements.
- Personal or family relationships with issuer executives.
- Referral fees from third parties (cross-references Standard VI(C)).

To whom: clients, prospective clients, and employers. Disclosure to one is not sufficient — each affected party must be informed.

How prominently: the disclosure must be 'prominent, delivered in plain language, and communicated effectively.' Burying disclosures in fine print or in a separate unlinked document fails the standard. Best practice is to include disclosures on the same page or in the same communication as the relevant recommendation or analysis.

Example: Alder Capital publishes a buy recommendation on Kingston Energy. Lead analyst owns 5,000 shares personally. The report must prominently state: 'The analyst and/or members of the analyst's household own shares of Kingston Energy. See Appendix for full disclosure schedule.' Merely adding a generic 'Analysts may hold positions' boilerplate is insufficient — the specific personal holding must be disclosed.

VI(A) also applies to employer disclosures: if you're doing outside consulting, you must tell your employer. On the CFA exam, if you see a fact pattern involving any potential conflict, VI(A) is almost always part of the answer, often combined with Standard III(A) loyalty obligations.

What exactly does Standard VI(A) on disclosure of conflicts require?

Master Level I with our CFA Course

Related Questions

Practice Questions