You manage a client portfolio. Your spouse owns 50,000 shares of a stock you are about to upgrade. Your custodian offers free vacation tickets for referring new accounts. Standard VI tells you what disclosure, sequencing, and reporting each of these scenarios demands.
Standard VI splits into three sub-standards. Each targets a different conflict mechanism. VI(A) Disclosure of Conflicts covers any matter that could impair objectivity to clients, prospective clients, or employer. VI(B) Priority of Transactions governs the order of trades when you, your firm, and your clients all want the same security. VI(C) Referral Fees governs any compensation paid or received in connection with directing business.
KEY: A conflict of interest is not automatically a violation. The violation arises from failing to disclose, failing to prioritize correctly, or failing to manage. A member who owns stock in a recommended company has a conflict. A member who owns that stock and discloses prominently before recommending has met VI(A).
Three qualities define adequate disclosure under VI(A): full, fair, and prominent. Buried footnotes in 8-point font fail. A verbal aside during a 60-minute pitch fails if it is not memorialized.
Common mistakes
- Treating disclosure as a cure for every conflict. Some conflicts are too severe. A board seat at a covered company, a family member who runs the issuer, or compensation that overwhelms judgment all require removal or recusal, not just disclosure. Trap: selecting "disclose the relationship and continue coverage" when the right answer is "decline coverage."
- Confusing beneficial ownership with legal title. VI(B) applies to any account where the member has economic interest or control. Spouse, minor children, household members, and controlled trusts all count as the member's accounts. Trap: assuming a trade in a spouse's name is exempt from priority-of-transactions rules.
- Disclosing referral fees only by request or only in fine print. VI(C) requires proactive, prominent, quantified disclosure before engagement. "Available on request" language fails. Trap: a client who signs an engagement letter in January and learns of a 15 bps referral fee in December has not been adequately informed.
Bottom line
- VI(A) Disclosure: full, fair, and prominent in the document the client actually reads, delivered before the conflict can taint judgment, not after.
- VI(B) Priority: clients first, employer second, personal accounts last. Personal includes spouse, minor children, household members, and controlled trusts (beneficial ownership).
- VI(C) Referral fees: disclose existence, nature, and value before the client engages, not at year-end.
- Non-cash compensation (free trips, conference passes, soft dollars) counts as referral consideration under VI(C) just like cash.
Exam shortcut
When a vignette presents a conflict, ask three questions in order: Was it disclosed prominently before the client could act? Were client transactions executed before personal ones? Were all referral payments named and quantified up front? Any "no" maps to a violation of VI(A), VI(B), or VI(C) respectively.
The full lesson (about 2,775 words, 19 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- standard VI conflicts of interest
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