Standards VI and VII: Conflicts of Interest; Responsibilities as a Member or Candidate: practice question

Miriam Sarr, CFA, an independent adviser in Kannvar, receives a fee for each client she refers to a local estate-planning firm and has just referred a new client whom she will begin to advise next week. Kannvar's conduct rules allow referral arrangements to be disclosed in the client's first quarterly statement, while the Code and Standards require disclosure in time for the client to weigh the arrangement when deciding how to act. Sarr must make the disclosure:

1. in the client's first quarterly statement, the point that the Kannvar rules accept as timely
2. only if and when the client asks how she is compensated for introducing the advisers she recommends
3. before she begins advising the client, because the Code fixes the earlier date at which disclosure is due

Show answer and explanation

Correct answer: C

Explanation: C is correct. Where timing rules differ, the member must meet the one that requires disclosure earlier — the Code's requirement that the client be told in time to weigh the arrangement — and saying nothing until a quarterly statement falls short of it. A is incorrect because the Kannvar deadline, being the later and less demanding of the two, does not hold back the Code's requirement; a member cannot use a market's outer limit to delay what the Code treats as due sooner. B is incorrect because the Code's disclosure duty is not triggered by a client's curiosity: it runs on the member's own arrangement and falls due at the time the Code fixes, whether or not the client ever asks.