CFA Practice Question

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CFA Practice Question

Which of the following is (are) correct under the Code and Standards?

I. CFA Institute's members are prohibited from undertaking independent practice in competition with their employer.
II. Written consent from the employer is necessary to permit independent practice that could result in compensation or other benefit in competition with a member's employer.
III. Written consent from an outside prospective client is necessary to permit independent practice that could result in compensation or other benefit in competition with a member's employer.
IV. Members are prohibited from making arrangements or preparations to go into a competitive business before terminating their relationships with their employers.
Correct Answer: II only

User Contributed Comments 11

User Comment
kalps Note four is not true, as arrngements and preparations is fine, however poaching etc or actually getting business while employee is NOT fine
danlan I is wrong, similar to IV?
mtcfa I is wrong because you can undertake independent practice... you just need to disclose it to your employer and receive written permission.
lockedin Doesn't the client have to acknowledge in writing the independent practice separate from the member's employer?
0is4eva Under the section "Independent practice" it says e.g. "Members and candidates should not render services until receiving consent from their employer to all of the terms of the arrangement." Under the section "Additional compensation arrangements" there is a reference to "written consent". "Members and candidates must not accept ... compensation ... that competes with ... their employer's interest unless they obtain written consent from all parties involved."

--> Pay attention to the small details!
DonDon III is not correct because it is only a prospective client, but if they become a client they have to be notified and accept in writing.
surob DonDon, can you refer me to the section where it specifically mentions it? Thanks
Rotigga I. is wrong because you can start an independent practice in competition with your employer ONLY IF YOU'RE A CONTRACTOR. An employer would never give permission to its employee to start a competing business, whereas an employer does not enjoy the same degree of control over its contractor.
bobert Rotigga, I agree and disagree with you. The activities undertaken have to be independent of the employers practice. You cannot do the same practice for two different employers. Say you do trading for company A, but then you are a bank teller for company B, a service which is not offered by A. you are not an independent contractor, but you are not doing the same job service. Is it likely that your current employer would allow for this type of arrangement? Probably not, because it you are taking away from the time and skill you offer, which is why you are are employed currently.

You can't be in competition with your employer for the same services, but you do not necessarily have to be a contractor.

The key words to watch for are:
Practice: which is any service that the employer currently makes available for payment. And,
Undertake: The member/candidate actually has to participate in such activities for them to be considered a violation of the standard.
johntan1979 While II is correct and true, I wonder if it will ever happen in reality. I mean, which boss of a large financial institution will give permission to an employee seeking additional outside income in DIRECT COMPETITION with the company's business?

For all you know, they'll be fired immediately or put on the "cold treatment" list.
MapherRdz obbert i dont understand your argument...
the answer I says that memberst are PROHIBITED fromo undertaking independent practice if they are in competition with their employer, so ... the job would be something he/she is doing and paid in his/her actuall job so... why is this incorret? I dont really understand
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