Guidance for Standards I–VII

Correct Answer: Disclose the conflict to their employer, clients, and any relevant parties, and seek to resolve it in an ethical manner

According to the CFA Institute Standards of Professional Conduct, the most appropriate action for a member who discovers a potential conflict of interest is to disclose the conflict to their employer, clients, and any relevant parties, and seek to resolve it in an ethical manner. The other answers are incorrect because: Assessing the nature and extent of the conflict and determining if it can be objectively managed through appropriate procedures and disclosures is a step in the process, but it is not the most appropriate initial action. Disclosure should be the first step. Informing the employer of the conflict and following their policies and procedures is important, but doing so even if it means compromising ethical principles is not appropriate. A CFA member should always prioritize ethical principles over employer policies if there is a conflict between the two.

Correct Answer: Maintaining independence and objectivity in their professional activities

The most important principle for CFA members and candidates to uphold is maintaining independence and objectivity in their professional activities. This is a core tenet of the CFA Institute's Code of Ethics and Standards of Professional Conduct. Achieving the highest possible investment returns for clients at the expense of potential conflicts of interest is not ethically appropriate. Members and candidates must prioritize their duty to clients and the integrity of the profession over personal gain. Protecting an employer's reputation should not come at the cost of compromising one's ethical principles. The CFA Institute's standards make it clear that members and candidates must adhere to the Code and Standards even if doing so conflicts with their employer's interests.

Correct Answer: Politely decline the gift and explain to the client that accepting gifts could create a conflict of interest

Politely declining the gift and explaining to the client that accepting gifts could create a conflict of interest is the most appropriate action according to the CFA Institute Standards of Professional Conduct. Accepting gifts from clients, even if they are of nominal value, can be seen as a potential conflict of interest and may influence the member's objectivity and independence. Disclosing the gift to a supervisor or compliance department does not fully mitigate the ethical concerns associated with accepting gifts from clients. Reciprocating with a gift of similar value to maintain the business relationship is also inappropriate, as it can be viewed as a quid pro quo arrangement and further compromise the member's independence and objectivity.