Jefferson Piedmont, CFA, a portfolio manager for Park Investments, plans to manage the portfolios of several family members in exchange for a percentage of each portfolio's profits. As his family members have extensive portfolios requiring substantial attention, they have requested that Piedmont provide the services outside his employment with Park. Piedmont notifies his employer in writing of his prospective outside employment. Two weeks later, Piedmont begins managing the family members' portfolios. By managing these portfolios, which of the following CFA Institute Standards of Professional Conduct has Piedmont violated?

• A. Conflicts of Interest
• B. Additional Compensation
• C. Both Additional Compensation and Conflicts of Interest
• D. Nothing has been violated.

Answer: (C)

The situation tests how outside employment and outside compensation interact with a member’s duties to their employer. When a CFA member takes on outside work for compensation, they must clearly disclose and obtain written permission from their employer before starting, and the outside activity must not impair the member’s ability to serve the employer and its clients. Here, Piedmont planned to manage family portfolios for a share of profits—an arrangement that pays him outside his Park Investments compensation. Even though he sent a written notice, he began the outside work without documented, explicit approval to proceed. That lack of clear authorization makes the outside compensation improper under CFA standards.

This same scenario also raises a conflicts-of-interest concern. Managing portfolios for family members while employed by Park creates competing loyalties and the potential for attention, time, or resource constraints to be diverted away from Park’s clients. The outside arrangement could influence decisions in favor of his own outside clients and profits, which violates the obligation to avoid conflicts and to act in the best interests of Park’s clients. Because both the outside compensation and the potential conflicts are present, both standards are implicated.