Which CFA Institute standard is violated when an advisor takes on an outside business activity that conflicts with clients and fails to disclose it?

• A. Standard III.A Loyalty, Prudence, and Diligence.
• B. Standard III.C Responsibilities of Supervisors.
• C. Standard IV.E Preservation of Confidentiality.
• D. Standard I.D Misconduct.

Answer: (A)

The key issue here is loyalty to clients and the proper management of conflicts of interest. An advisor must put clients’ interests first and avoid any situation that could compromise that duty. When an advisor takes on an outside business activity that could conflict with clients and fails to disclose it, the advisor breaches that obligation by not acting with diligence and prudence in safeguarding the client relationship. The standard that specifically covers this duty—to act loyally for clients, to exercise prudence and diligence, and to disclose and manage any actual or potential conflicts of interest—is violated.

Other standards address different concerns. A standard about supervising others covers the responsibilities of those who oversee professionals. A standard about confidentiality concerns protecting client information. A general misconduct standard covers unethical behavior more broadly. None of these directly target the failure to disclose an outside activity that conflicts with clients, which is why the loyalty, prudence, and diligence standard is the correct one.