CFA Standard IV(A) vs IV(B): Employer Loyalty and Additional Compensation

CFA employer-duty questions are usually less about memorizing the standard number and more about identifying the trigger. Standard IV(A) asks whether the member is harming, competing with, or misusing the employer's resources while still employed. Standard IV(B) asks whether the member is receiving compensation or benefits from another party that could create a conflict with the employer's interest.

The clean exam habit is to ask: "Is the problem about loyalty conduct, or is it about outside compensation?"

The core distinction

Standard IV(A), Loyalty, focuses on the employee's duty to the employer. While employed, members and candidates should not deprive the employer of the advantage of their skills, divulge confidential information, or otherwise cause harm through competitive conduct.

Standard IV(B), Additional Compensation Arrangements, focuses on outside compensation and benefits. A member should not accept compensation, benefits, or consideration that competes with or might reasonably create a conflict with the employer's interest unless written consent is obtained from all parties involved.

Standard IV(A): loyalty while still employed

Loyalty does not mean an employee can never leave, interview, or prepare for a future business. It means the member cannot use the current employer's time, information, client relationships, property, or opportunities against the current employer.

Allowed preparation versus prohibited competition

Allowed preparation may include:

• forming a legal entity on personal time,
• renting future office space,
• buying generic public research tools,
• preparing a business plan using public information,
• interviewing after work without using employer resources.

Prohibited conduct may include:

• soliciting current clients before resignation,
• taking client lists, models, research templates, or trade secrets,
• using employer systems to build a competing business,
• diverting a client opportunity away from the employer,
• making a side agreement that competes with the employer while still employed.

Worked example: leaving correctly

Marin Cho, a portfolio analyst at Baylight Advisors, plans to resign and join a new investment firm. On Saturday, using her own laptop, she drafts a business plan based only on public market data. She does not contact Baylight clients, copy files, or use Baylight's systems.

That preparation alone is not the usual violation.

Now change the facts. Marin downloads Baylight's client list, emails five clients from her personal account before resigning, and tells them to move their accounts to her new firm. That is a loyalty problem under IV(A) because she is using the employer's relationship base against the employer while still employed.

Standard IV(B): compensation from someone else

Standard IV(B) becomes central when a client, issuer, consultant, board, outside fund, or other third party offers compensation or benefits connected to the member's services.

The question is not only whether the member believes they can remain objective. The question is whether the compensation arrangement competes with or could reasonably create a conflict with the employer's interest, and whether proper written consent was obtained before acceptance.

What counts as compensation or benefit?

The benefit may be cash, but it does not have to be. It can include:

• performance bonuses from a client,
• referral fees,
• paid board service,
• equity interests,
• travel or entertainment tied to services,
• discounted services that are effectively consideration for investment work,
• side consulting fees.

Worked example: client bonus

North Shore Pension Plan tells Owen Patel, an analyst employed by Ridgewater Capital, that it will pay him 12,000 personally if Ridgewater's small-cap strategy beats its benchmark for the next year.

Owen cannot solve the issue by telling only the client. The employer needs to know because the bonus could affect Owen's loyalty and work priorities. Under IV(B), Owen should obtain written consent from Ridgewater and the other relevant parties before accepting the arrangement.

When both standards show up

Some fact patterns test both standards. Suppose Owen accepts the client bonus and also works on the client's custom portfolio on weekends using Ridgewater's models without approval.

• IV(B) issue: outside compensation requires written consent.
• IV(A) issue: using employer models and time-sensitive work product for an unapproved side arrangement can breach loyalty.

The exam may ask for the best next step. A strong answer usually includes disclosure, written consent where required, stopping the unapproved conduct, returning or protecting employer property, and following the firm's compliance procedures.

Exam framing

Trap 1: "I disclosed it to the client"

Disclosure only to the client does not satisfy the employer-duty concern. The employer must be able to evaluate the conflict.

Trap 2: "I did it after hours"

After-hours work can still violate IV(A) if it competes with the employer, uses confidential information, or diverts an opportunity.

Trap 3: "It was not cash"

Noncash benefits can still be compensation if they are consideration for services or could influence the member's conduct.

Trap 4: "I planned to resign soon"

Planning to resign does not erase duties owed before resignation. The timing of solicitation and use of employer property matters.

Quick decision rule

Use this sequence:

1. Identify whether the member is still employed.
2. Check for solicitation, competition, confidential information, employer property, or diverted opportunities.
3. Check for outside compensation or benefits.
4. If compensation is present, ask whether written consent was obtained before acceptance.
5. If both conduct and compensation issues are present, analyze IV(A) and IV(B) separately.

That sequence keeps similar-looking fact patterns from blurring together.