I(B): Independence and Objectivity

But in very specific cases, an offer of gratitude can be distinguished from an attempt to influence. What type of gift do you think might be acceptable, without causing conflict of interest?

That's right. The standard differentiates between a gift from a client and a company trying to influence a member or candidate. The gift from a client for good performance can be considered additional compensation, although the wealth manager would still need to check that accepting the gift complies with the firm's policies and, if accepted, disclose the gift to the firm.

Definitely not. This doesn't seem to encourage independent thinking and objectivity, and is clearly an attempt to influence the analyst's report. Even if the analyst's opinion would not be changed, accepting the gift creates the appearance of influence.

Probably not a good move. Even though the analyst and the partner work for the same firm, the request is certain to influence the analyst and is a blatant conflict of interest. This is an example of an internal conflict that should be avoided.

To illustrate, consider a scenario where Amanda Boutin, CFA, leads the team working on the stock issue of Zeebox Corp. for her investment banking firm. Boutin invites Sarah Huang, CFA, the research analyst who normally covers Zeebox for the firm, to lunch and mentions that the firm is counting on a hefty commission from this share issue to make numbers and pay bonuses this year. Huang replies that she must provide an independent and objective assessment in her analysis, and that is what she intends to do. Huang completes her analysis and writes a report that is critical of Zeebox. At the end of the year, Huang judges her bonus to be fair and unaffected by the lunch conversation. Huang hasn't violated the Standards, but do you think Boutin has?

Very good. Boutin tried to compromise Huang's objectivity and influence the analyst's conclusion. If she had succeeded, it would have compromised the information that clients and the financial markets rely on.

Actually, no. While loyalty to your employer is important, it should never take precedence over independence and objectivity, which, in effect, is loyalty to your clients and to the financial markets. In fact, Boutin did violate the Standards by simply trying to compromise Huang's objectivity and influence the analyst's conclusion. If she had succeeded, it would have compromised the information that clients and the financial markets rely on.

Actually, no. Boutin did violate the Standards by attempting to influence Huang, which, in turn, and created a suspicion of influencing Huang's judgment. Note that whether she succeeded or not, she violates the Standard by simply trying, because the attempt creates the appearance of influence. If she had succeeded, it would have compromised the information that clients and the financial markets rely on.

The Standards provide recommended compliance procedures to prevent violations of independence and objectivity. These policies are designed to help avoid situations in which influence or pressure can be exerted. Given the following recommended procedures, which one would you throw out the window, based on what you know about Standard I(B) Independence and Objectivity?

Well, no. This would actually be a good policy to adopt, because there would be less opportunity to have a conflict with a firm that is both a client and the subject of research.

Actually, no. This would be a good policy because it would restrain employees from trading in firms that have some other relationship to the firm.

No, this one's a keeper. It's always a good idea to have compensation policies align with the firm's goals, and it's always a good idea to have the firm's goals align with the Code and Standards. This policy does both, because it encourages unbiased research.

Great job! This policy may sound like a good idea, but it is not suggested by the Standards. Remember: Gifts are actually allowed from clients under certain circumstances.

In summary: [[summary]]

Now, there are a _lot_ of instances in the financial markets where various intermediaries serve to provide information about other players. Rating agencies, for example, provide credit ratings that investors use to price bonds and equity analysts provide research that investors use to price stock. As you can imagine, when the integrity of that information is compromised because the independence and objectivity of the analyst has been compromised, clients and ultimately the financial markets are the losers.

Standard __I(B): Independence and Objectivity__ states that members and candidates have a responsibility to act with good judgment while also maintaining independence and objectivity relating to all professional endeavors. The standard focuses on not accepting gifts or compensation that could pose (or be perceived to pose) a conflict of interest or impair judgment. Such offers of gifts or compensation may come from within the firm (internal) or from outside the firm (external).

A gift from a client to a wealth manager for good performance last year

A gift from a company to an independent equity analyst to write a positive research report

A gift from the investment banking partner to a sell-side equity analyst in the same firm to maintain a buy recommendation on a corporate client

No, because Huang is a colleague and both Boutin and Huang are loyal to their firm.

No, because Boutin never delivered any unusual or inappropriate additional compensation.

Yes, because Boutin created an appearance of compromising Huang's independence and objectivity.

Ban the acceptance of all gifts

Restricting the types of investments an employee can buy

Create compensation policies that align with an unbiased research

Create and maintain a restricted list of companies that a research firm will not conduct analysis on

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