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 e volve 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 IV(A) Duties to Employers—Loyalty.
Contacting Former Clients from a Prior Employer
Clemence is a wealth management adviser for DeLaurier Strategic Advisors, where she is responsible for financial planning, portfolio management, estate planning, and general wealth management for more than 400 retail clients. She met many of these clients through her spouse, who is a well-known attorney, and her sister, who is a physician. Clemence decides to resign her position with DeLaurier to take a position at another firm where she will not be expected to generate new advisory clients but will take on more research and investment management responsibilities. She leaves DeLaurier on good terms, providing her supervisor with all the background and information that DeLaurier needs to transition her clients seamlessly to a new account manager. All of her clients have insufficient assets under management to become clients of Clemence’s new firm.
On the day Clemence leaves DeLaurier, she hastily downloads an Excel file listing DeLaurier clients, potential clients, and former clients and sends it to her personal email address. The list includes client names, assets under management, addresses, and phone numbers. Clemence’s intention is to contact her clients as a courtesy to inform them of her new position, thank them for being clients, and express her confidence that DeLaurier will continue to provide them with competent and professional service even though she has left the firm. Clemence’s actions are
B. appropriate because she does not use DeLaurier’s client list to benefit her new firm.
C. appropriate because she is protecting the interests of her clients.
D. appropriate as long as she only contacts clients who are personal friends to inform them of her new position.
E. none of the above.
What do you think is the correct choice? Click the “Analysis” button below to see the analysis for this case, 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.
Clemence has violated her duty of loyalty to her employer by copying the client list and taking it with her to use after she leaves DeLaurier. CFA Institute Standard IV(A): Duties to Employers—Loyalty requires that CFA Institute members act for the benefit of their employer and not divulge confidential information or otherwise cause harm to the employer. The client list is the property of DeLaurier. It contains proprietary confidential information about DeLaurier clients that Clemence is improperly using for her own purposes, however benign those purposes may be. It is clear that Clemence is not motivated to use the client list and information it contains to benefit her new firm and is working with DeLaurier to protect the interests of her former clients and to make them feel comfortable in continuing to use DeLaurier as their financial advisor.
Clemence may contact her former clients who are friends through personal channels, such as social media or a personal contact, but she cannot use DeLaurier’s property to facilitate this communication. As an alternative, she could ask DeLaurier’s permission to take her clients’ contact information so that she might send them a final “thank you” correspondence. In hastily trying to get information regarding her clients, Clemence has actually overreached and taken much more information than intended. She has not only taken information about her clients but also that of the firm’s former, current, and potential clients. Choice A is the best answer.
This case is based on a CFA Institute Professional Conduct enforcement action from 2018 that resulted in a Private Censure.
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