Put the Independence and Objectivity standard, I(B), into practice
The idea
Members must use reasonable care to achieve and maintain independence and objectivity, and must not offer, solicit or accept anything that could reasonably be expected to compromise their own or another's independence. Modest gifts from clients are permitted with disclosure to the employer; gifts from those seeking to influence an opinion call for far more caution, because the test is whether they could reasonably be expected to compromise independence. The test is not whether the member feels influenced — people reliably believe they are not — but whether a reasonable observer would expect the arrangement to compromise judgement. Travel paid by a company being analysed is the recurring example, and the remedy is to pay one's own way.
A practice question
An analyst is offered a lavish trip by a company they cover, paid by the company. What should they do?
- Accept, provided the trip is disclosed afterwardsWhy not: Disclosure after the fact tells the reader about a compromise rather than preventing one, and Standard I(B) asks the member to avoid it.
- Decline, or have their employer pay the cost — correct
- Accept if the analyst is confident it will not affect their opinionWhy not: The Standard uses the reasonable observer rather than the member's own confidence, because influence is not reliably visible from the inside.
Standard I(B) Independence and Objectivity asks a member not to accept a benefit that could reasonably be expected to compromise their judgement. Paying the commercial cost removes the question instead of disclosing it.
A harder one
What is the correct test for whether a benefit compromises independence?
- Whether a reasonable observer would expect it to — correct
- Whether the member personally feels influencedWhy not: Self-assessment is the one test the Standard cannot use, since people reliably believe themselves uninfluenced.
- Whether the benefit exceeds a stated monetary thresholdWhy not: No threshold appears in Standard I(B). A modest benefit tied to a particular outcome can compromise judgement more than a larger unconditional one.
Standard I(B) is framed around what a reasonable observer would expect, which is why a member's own sense of being unaffected does not settle it.
The hardest tier
A portfolio manager receives a valuable gift from a pleased client, contingent on continued outperformance. What does the Standard require?
- Nothing, since gifts from clients are always permittedWhy not: Client gifts are treated more leniently than those from third parties, but a performance-contingent one is an additional compensation arrangement and needs written consent from all parties involved, the employer included.
- Refusal, since client gifts may never be acceptedWhy not: The Standard does not prohibit client gifts outright. What it requires here is written consent to the arrangement from all parties involved, which leaves the decision with the employer.
- Written consent from all parties involved before acceptance — correct
Standard IV(B) governs, because a benefit contingent on future performance is an additional compensation arrangement that competes with the employer's own incentive scheme. It requires written consent from all parties involved before acceptance. Disclosure alone is not enough: the point of consent is that the employer can refuse.
In the app: 12 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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