A member fails to disclose ownership of a significant stake in a client's company before recommending the stock. Violation?

• A. Standard II.A Material Nonpublic Information
• B. Standard I.C Misrepresentation
• C. Standard IV.A Loyalty, Prudence, and Care
• D. Standard VI.A Disclosure of Conflicts

Answer: (D)

This question hinges on conflicts of interest and the duty to handle them transparently. When a member owns a significant stake in a client’s company and then recommends that company’s stock, there is a material financial interest that could bias the advice. The ethical requirement is to disclose any such conflicts to the client (and typically obtain informed consent or take steps to resolve the conflict) before giving recommendations. Failing to disclose prevents the client from assessing potential bias and undermines the trust and loyalty owed to the client. That is why the situation violates the standard that governs disclosure of conflicts of interest. The other options don’t fit as precisely: material nonpublic information would involve insider information about trading; misrepresentation concerns false statements; while loyalty and care cover acting in the client’s best interest, the specific violation here is the failure to disclose a conflict of interest.