CFA Institute’s Code of Ethics and Standards of Professional Conduct codify the ethical guidelines for the investment profession that are critical to maintaining the integrity of capital markets and investor trust. Members, candidates, and even firms make a commitment to uphold these standards as they help elevate ethical decision-making universally around the globe.
As investment professionals, we are certain to face important ethical decisions in our day-to-day activities. Some scenarios we encounter will be straightforward, while others may be more complex. No matter what circumstances we face, continuous learning remains imperative in an investment industry that continues to evolve with products undergoing innovation and a regulatory environment continuing to adapt.
For that reason, each week we will feature a sample case from CFA Institute’s Ethics in Practice Casebook. Each case is built upon a real-life example that may involve a regulatory matter or even a CFA Institute Professional Conduct investigation. At the end of the case is a multiple-choice question that addresses the ethical nature of the actions taken in that case.
This week’s case involves Standard III(E) Preservation of Confidentiality.
Doing a Favor for a Grandson?
Kinner is an investment adviser with a number of elderly high-net-worth clients. One of her clients, Abbott, an 87-year-old globally well-known photographer, has been Kinner’s client for more than 30 years. She visits Kinner’s offices regularly to discuss her investment portfolio. Over the past several visits, Kinner has noticed that Abbott has increasing difficulty communicating and seems to be confused about concepts and ideas that she formerly was familiar with and able to understand. Abbott also appears significantly physically diminished. Lately, she has been accompanied by her grandson who describes himself as Abbott’s caregiver.
During her most recent visit, Abbott asks Kinner to move a portion of her assets into some speculative investments and to withdraw a significant amount of funds so that she can invest in a bakery that her grandson is opening. Abbott assures Kinner that these are her wishes, stating, “I have talked about these changes with my grandson, and we are sure these are good investments.” Kinner is alarmed by Abbott’s new investment directives, believes Abbott’s physical and mental health may be declining, and suspects Abbott has been improperly influenced by her grandson, who is taking advantage of Abbott’s wealth. Kinner does not make the changes to Abbott’s portfolio that Abbott requested. Instead, Kinner reports her concerns to a government agency charged with administering assistance to the elderly and infirm, as permitted by applicable law. Kinner’s actions are
A. inappropriate because Kinner should have contacted a close family member or trusted professional, such as Abbott’s attorney or accountant, about her concerns regarding Abbott’s apparent decline.
B. appropriate because Kinner is working to protect Abbott’s interests and is following applicable law.
C. inappropriate because Kinner is violating her duty of confidentiality under the CFA Institute Standards of Professional Conduct by discussing Abbott’s investments with the government agency.
D. appropriate if Kinner speaks separately with Abbott’s grandson in his role as Abbott’s caregiver to advise against changing the investment directives
What do you think is the correct choice? Click the “Analysis” button below to see the analysis, and feel free to discuss in the comments below. The completion of this case qualifies for 0.25 hour of Standards, Ethics, and Regulation (SER) credit.
This case involves CFA Institute Standard III(E): Confidentiality, which requires CFA Institute members to keep information about clients confidential unless the information involves illegal activities, the client permits disclosure, or disclosure is required by law. This requirement can become problematic if an investment professional suspects that a client’s mental faculties are failing and thus believes it is necessary to consult with outside parties. A best practice for investment advisers is to establish a secondary contact at the beginning of the client arrangement. The client provides permission for the investment professional to contact the designated person should concerns arise about the client’s ability to make informed financial decisions.
In the absence of such an arrangement, investment professionals may make limited disclosures pertaining to the existence of a client account and concerns about the vulnerability of the client as directed by applicable law. Regulatory or government agencies often provide resources for intervening when such concerns arise. These entities have the authority to properly investigate the situation of the investor. CFA Institute members who are following applicable law regarding permitted disclosures are not in conflict with their obligations under Standard III(E). But speaking with other third parties, such as Abbott’s attorney, accountant, or grandson, about confidential information in Abbott’s account would violate Standard III(E). Choice B is the best answer.
This case is based on new guidance on providing services to vulnerable clients under CFA Institute Standard of Professional Conduct III(E): Confidentiality, which was recently released by CFA Institute.
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© 2019 CFA Institute. All rights reserved. You may copy and distribute this content, without modification and for non-commercial purposes, provided you attribute the content to CFA Institute and retain this copyright notice. This case was written as a basis for discussion and is not prescriptive of how a business situation or professional conduct matter should or should not be handled or addressed. Certain characters mentioned are fictional to facilitate discussion, and any resemblance to actual persons is coincidental.