CFA Practice Question

CFA Practice Question

Jake Kudlow has just been married and he and his wife move to an upscale apartment near his wife's work downtown. While the couple has adequate income to meet their current expenses, they want to buy a house in the suburbs before starting a family in three or four years. In order to supplement his salary, Jake suggests that he freelance in the evenings and on weekends, and consults for a friend who has an established investment advisory practice. His friend can use an independent consultant like Jake to evaluate his research reports and suggest improvements. Jake does not write research reports for his employer; he only handles investment banking business. Research reports are produced by a different department.
A. Jake has not violated any standard since he is performing these services without encroaching upon his employer's time and he is not competing with his employer.
B. Jake is walking a fine line since he may be unavailable to his employer to work overtime without being paid (it is common for analysts to spend long hours in the office without being paid overtime). So long as he does not refuse to work overtime when required he is not in violation of the Code and Standards.
C. Jake has violated Standard IV - Duties to Employers.
Explanation: If a member wishes to start an independent practice for compensation or other benefits, (s)he must get written consent of the employer while disclosing the nature of services, length of engagement, and terms of compensation. Even though Jake does not write research reports for his employer, the fact that the employer produces such reports puts Jake in a position where he could be competing with the employer indirectly (if Jake's friend attracts new clients who may be considering Jake's firm). Members should not put themselves into situations where a conflict of interest with the employer may arise. Full disclosure and consent are necessary to prevent such occurrences.

User Contributed Comments 3

User Comment
orchid duties to employer
-full disclosure n consent
-should have no conflict of interest
cong writen consent is mandatory prior to undertaking independent work.

Suspicision of conflicting interests should be avoided.
Mikehuynh Duties to employers:
- Loyalty => don't engage in activities in direct competition
- Inform employers in writing but no need to get written acceptance
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