Alexandra Zagoreos, CFA, is the head of a government pension plan. Whenever Zagoreos hires a money management firm to work with the pension plan, she finalizes the deal over dinner at a nice restaurant. At these meals, Zagoreos also arranges for the money manager to provide her payments equal to 10% of the management fee the manager receives from the pension plan with no formal documentation of this agreement. Zagoreos keeps half of the payments for her own use and distributes the remainder as cash incentives to a handful of her most trusted staff. Zagoreos least likely violated which of the following CFA Institute Code of Ethics and Standards of Professional Conduct?

• A. Referral fees.
• B. Loyalty, Prudence and Care.
• C. Additional Compensation Arrangements.
• D. Confidentiality and Privacy.

Answer: (A)

This scenario hinges on the prohibition against accepting or arranging payments tied to referrals. Zagoreos is arranging for the money manager to pay her 10% of the manager’s fee, with no formal documentation, and she then distributes part of that money to staff. That creates a financial incentive to steer the pension plan to a particular manager, which is exactly the kind of referral fee or kickback the CFA Institute Code of Ethics and Standards of Professional Conduct prohibits. Such arrangements undermine objectivity and loyalty to the client, because decisions are influenced by personal gain rather than the best interests of the pension plan.

The issue directly exemplifies a referral-fees problem. While the conduct also implicates other standards—like loyalty, prudence and care, and additional compensation arrangements—the core concern in this scenario is the undisclosed, paid-for referral arrangement. The confidentiality standard isn’t implicated by these facts.