VI(A): Avoid or Disclose Conflicts

Ken Wood, CFA®, is a significant shareholder of a successful start-up where he is also the CFO. Wood is shopping for an investment bank to manage the firm's initial public offering (IPO). Wood approaches several banks; each gives him an estimate of services and costs. Best Investment Bank (BIB) promises the best outcome and the least cost and also promises to deposit shares of other IPOs that it manages into Wood's personal retirement account. Wood decides to choose BIB to manage the IPO. To avoid violating the Standards, Wood is _most likely_:

Correct. Standard VI(A) states, "Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity..." Although BIB did promise the lowest cost and it is not clear that Wood's choice was made because of his personal arrangement, it is a conflict of interest that may have affected his objectivity and must be disclosed to his firm.

Incorrect. Although best practice is to avoid conflicts of interest, they are common and sometimes unavoidable in the investment profession. The Standards do not require that conflicts be avoided.

Incorrect. While Wood may be assumed to act in the firm's best interest, this arrangement does create a conflict of interest which may affect his objectivity.

required to disclose the entire arrangement to his firm.

required to choose a different bank to manage the IPO.

not required to disclose this personal arrangement to his firm, because as a significant shareholder and CFO, he may be assumed to act in the firm's best interest.