A firm offers a compensation incentive to advisers without fully disclosing the terms to clients. Violation?

• A. Standard III.B Additional Compensation Arrangements
• B. Standard I.D Misconduct
• C. Standard VI.A Disclosure of Conflicts
• D. Standard VII.B Reference to CFA Institute

Answer: (A)

The main idea here is transparency about compensation that could influence advice. If a firm offers advisers a compensation incentive but doesn’t fully disclose the terms to clients, those clients can’t assess whether recommendations were shaped by the incentive rather than the clients’ best interests. This directly falls under Additional Compensation Arrangements, which requires full disclosure of any compensation or economic benefits that could affect the objectivity of investment advice. So, the situation is a violation of that standard. While failing to disclose conflicts can relate to disclosure of conflicts, the specific rule addressing undisclosed or incompletely disclosed compensation arrangements is the best fit. The other standards don’t address this exact issue as directly, and the option about CFA Institute references isn’t relevant here.