Put Standard VI(A), on avoiding or disclosing conflicts, into practice
The idea
Standard VI(A), retitled Avoid or Disclose Conflicts in the 12th edition, requires members to avoid, or make full and fair disclosure of, all matters that could reasonably be expected to impair their independence and objectivity or interfere with their duties to clients, prospective clients and employer. Avoiding a conflict, once described only as best practice, is now named in the Standard itself: avoidance is preferred, and members should avoid a conflict whenever that is reasonably possible, such as declining a promoter's payment or asking for a stock the analyst's family owns to be covered by a colleague. Where a conflict cannot reasonably be avoided, the member should mitigate it where possible and must disclose it, and how it has been mitigated, prominently, in plain language and effectively. Beneficial ownership of a recommended security, an investment banking relationship with a covered company and compensation arrangements are typical examples. Disclosure is the fallback rather than a cure-all: it does not make acceptable conduct that another Standard prohibits.
A practice question
How must a conflict of interest be disclosed under Standard VI(A)?
- In a footnote to the firm's annual accountsWhy not: A footnote reaches shareholders long after the event and is the opposite of prominent delivery to the client.
- Prominently, in plain language, to the person affected — correct
- Only if the client asksWhy not: A client who does not know a conflict exists has no reason to ask, which is why the duty does not wait for a question.
Standard VI(A) Avoid or Disclose Conflicts requires a conflict that is not avoided to be disclosed prominently, in plain language, and in a way that actually communicates it to the person affected.
A harder one
To whom is the disclosure duty owed?
- Clients onlyWhy not: A prospect deciding whether to engage needs the same information, and the employer needs it to supervise.
- Clients and the employer onlyWhy not: Omits the prospective client, who is being asked to rely on the member before any relationship exists.
- Clients, prospects and the employer alike — correct
Standard VI(A) owes disclosure to clients, prospective clients and the employer, since each makes decisions that the conflict could distort.
The hardest tier
A member discloses an arrangement that fundamentally compromises their judgement. Is the Standard satisfied?
- Yes, disclosure is the remedy in every caseWhy not: Disclosure is the fallback for conflicts that cannot reasonably be avoided, and a disclosed but fundamentally compromised opinion is still compromised.
- Yes, provided no client objectsWhy not: Silence from clients is not consent, and most will not be in a position to judge the severity.
- No, some conflicts must be avoided instead — correct
Standard VI(A), now Avoid or Disclose Conflicts, expects a conflict to be avoided whenever reasonably possible, and an arrangement the member chose to enter can be declined. Disclosure is the fallback for conflicts that cannot reasonably be avoided; it does not restore a judgement the arrangement has compromised.
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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