CFA Practice Question

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CFA Practice Question

In the first example of the reading, the junior analyst has a duty to his employer but his bonus and compensation are tied to the employer's success. This is an example of ______ he faces in the situation.

A. situational influences
B. conflicts of interest
C. important facts
Correct Answer: B

Conflicts of interest: are there any encumbrances, relationships, or incentives influencing your actions?

User Contributed Comments 5

User Comment
sgillespie Why is the answer B, and not A (Situational Influences)?
From the CFA reading (page 27, "Solution to 6") - "The bonus and his colleague's desire to help his mother are situational influences."
john6668 Agreed with sgillespie, even in AnalystNotes reading Reading 1 Subject 3, situational influence notes "...They can motivate individuals to act in their short-term interest without recognizing the long-term risks or consequences for themselves and others. Examples include financial rewards..."
Daood12 Option B is correct , because In exhibit 3 -Identification phase from the CFA Reading (page 23, 'solution to 6') , it writes under point 3
conflicts of potential conflicts of interest include the following ;
- My bonus,compensation, and career prospects are tied to my supervisor's and the IPO's success; duty to employe
Daood12 Duty to employer is key word here, as there is a potential conflict of interests between what duty to employer demands and what desire for bonus, compensation and career prospects demand.

A situational influence it will become, when there is a question of bonus , compensation and career prospects versus the contribution by the employee in a deal. Which will influence the employee's bonuses etc
UcheSam The question decided to be silent about the Duty to Client which is the most important but harped on compensation being tied to employer’s success. Duty to client is given and one should not be told. Your duty to your client may conflict with your duty to your employer.
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