If Norman Bosno agrees to a two million dollar investment with a quid pro quo bonus and the investment is deemed too risky, which CFA Standard is least likely to be violated?

• A. Loyalty, Prudence, and Care.
• B. Diligence and Reasonable Basis.
• C. Additional Compensation Arrangements.
• D. Misrepresentation.

Answer: (B)

The key idea is how personal incentives and conflicts of interest affect the obligation to base advice on sound, objective analysis. When someone agrees to a large investment in exchange for a quid pro quo bonus, it creates a clear conflict that can bias judgment and erode trust. That kind of arrangement runs directly afoul of compensation-related standards and, more broadly, loyalty to clients.

Because of the quid pro quo, misaligned incentives undermine loyalty, prudence, and care toward clients, and they raise concerns about misrepresentation if risk details are presented to clients to push the deal. Those standards are the ones most at risk in this scenario.

Diligence and Reasonable Basis, on the other hand, centers on the adequacy of the analysis behind any recommendation and whether there is a solid, documented justification for a decision. If the analysis supporting the investment was conducted thoroughly and supported by evidence and reasonable assumptions—even if the investment ends up being deemed too risky—the decision still rests on a sound, documented basis. In that sense, this standard is the least likely to be violated given that the process itself could be proper and well-supported, whereas the compensation arrangement and loyalty issues are the ones that clearly undermine the advisor’s independence and integrity.