Scenario: A firm engages in a compensated arrangement with a fund sponsor but fails to disclose the relationship to clients. Which CFA Institute Standard is violated?

• A. Standard IV.E Preservation of Confidentiality
• B. Standard VI.A Disclosure of Conflicts
• C. Standard V.A Diligence and Reasonable Basis
• D. Standard IV.C Suitability

Answer: (B)

The main concept here is the obligation to disclose conflicts of interest to clients. A compensated arrangement with a fund sponsor creates a potential bias in the advice or services offered, even if there’s no actual misconduct. CFA Institute Standard VI.A requires that any conflict that could influence or appear to influence the member’s or candidate’s judgment be disclosed to clients. Failing to disclose this relationship leaves clients unable to assess the objectivity of the recommendations, which violates that standard.

Confidentiality concerns (preserving client information) aren’t triggered by this scenario, since it’s about disclosure of a relationship rather than protecting data. Diligence and Reasonable Basis pertains to the quality and support for the investment analysis, not to whether conflicts are disclosed. Suitability focuses on matching recommendations to the client’s needs, but the breach here is the undisclosed conflict itself, not the suitability assessment.