A portfolio manager moonlights weekends advising a friend's hedge fund, uses no company resources, and tells nobody at her day job. Standard IV decides whether she keeps her charter.
Standard IV governs the relationship between you and the firm that pays you. It splits into three sub-standards: IV(A) Loyalty, IV(B) Additional Compensation Arrangements, and IV(C) Responsibilities of Supervisors. Each sub-standard has its own conduct rules and its own recommended procedures.
You must act for the benefit of your employer. You cannot deprive the firm of the advantage of your skills and abilities, divulge confidential information, or otherwise cause harm. The employer relationship triggers a fiduciary-like duty during work hours and a non-compete duty around outside work that could affect your firm's interests.
KEY: Standard IV(A) does not block you from outside activities. It requires written consent from your employer before you engage in any independent practice that could compete with your firm's business. Consent must address the type of services, the time commitment, the expected compensation, and the duration.
Common mistakes
- Treating skills and experience as employer property. General investment knowledge, analytical training, and professional contacts you acquired during employment are yours. Trap: marking "violation" when a departing analyst uses general industry expertise at the new firm. The violation is taking files, client lists, or proprietary research, not taking expertise.
- Assuming verbal disclosure satisfies IV(A) or IV(B). Both Standard IV(A) (for outside practice) and Standard IV(B) (for additional compensation) require written consent. Trap: "she told her boss" is not consent. The exam often gives a verbal mention and expects you to flag it as inadequate.
- Forgetting that "all parties" means two parties under IV(B). Written consent must come from the employer AND the outside party offering the benefit. Trap: getting consent only from the employer and missing the outside party, or vice versa.
Bottom line
- IV(A) Loyalty: act for your employer's benefit; do not deprive it of your skills, harm its business, or take its property when you leave.
- IV(B) Additional Compensation: obtain written consent from all parties (your employer AND the outside party) before accepting any benefit that could conflict.
- IV(C) Responsibilities of Supervisors: make reasonable efforts to detect and prevent violations by anyone you supervise.
- Skills and experience are portable. Files, client lists, code, and confidential research are not.
Exam shortcut
When a vignette describes outside work without written consent, the answer involves IV(A). When the vignette describes outside compensation, look for IV(B) and check that BOTH parties consented in writing. When the vignette features a supervisor and a subordinate's misconduct, IV(C) is in play and the supervisor's response (or absence of response) is the test.
The full lesson (about 2,571 words, 17 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- standard IV duties to employers
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