This case potentially involves the CFA Institute standards related to conflicts of interest. Standard VI(A): Disclosure of Conflicts requires members to “make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with their duties to their clients, prospective clients, and employer.” Does either Joyce of Neville have a conflict they need to disclose to Roger?
It is possible that Joyce is recommending Neville to Roger because he is a close family relation and not solely because of his abilities as an asset manager. But she could also not want Roger to feel pressured to hire Neville just because he is her brother. Also, the discussion between Joyce and Roger is personal rather than professional in nature. Roger is not a client or potential client for Joyce, but rather they are just colleagues having a friendly discussion over lunch. Roger is not seeking investment advice. But even though Joyce’s actions in this particular scenario do not violate Standard VI(A), it may be prudent for Joyce to make such a disclosure at the outset. If Roger learns of the brother–sister relationship, he may feel that Joyce withheld important information from him. She could potentially still find herself on the receiving end of a complaint, especially if things later sour between Neville and Roger. One would hope that, in the interests of transparency and to promote her personal relationship with a colleague, Joyce would let Roger know that Neville is her brother.
As for Neville, there is no required disclosure to Roger under Standard VI(A) because the fact that Roger was referred to Neville by his sister does not present a discernible conflict on the part of Neville. Another thing to look at is Standard VI(C): Referral Fees. This standard requires members “to disclose to their employer, clients, and prospective clients any compensation, consideration, or benefit received from or paid to others for the recommendation for products of services.” The facts indicate that Neville had a referral fee arrangement in place for his current clients when they referred his services to others. But in this particular case, Neville’s sister Joyce was unaware of the potential payment and turned down the referral fee when it was offered. So, Joyce was not influenced by a potential referral fee arrangement. If Neville had paid the referral fee to Joyce, he would have had to disclose this fact to Roger. But because no fee was paid, Standard VI(C) is not implicated. As a result, the best answer is choice A, which is that neither Joyce nor Neville violated the CFA Institute Standards of Professional Conduct.
Case facts supplied by Tanuj Kholsa, CFA, CAIA.