Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

Is it a violation of CFA Institute Standards for a portfolio manager to accept a vacation bonus based on future performance?

1. No, if other clients are informed about the bonus.

2. No, if the employer is informed about the intention.

3. Yes, if the bonus originates from a client.

4. Yes, unless written consent is obtained from the employer.

The correct answer is: Yes, if the bonus originates from a client.

The acceptance of a vacation bonus based on future performance could indeed raise ethical concerns, particularly when the bonus originates from a client. Under the CFA Institute Standards of Professional Conduct, a portfolio manager must prioritize the interests of their clients and avoid situations that could lead to conflicts of interest. Accepting a bonus from a client can create an inherent conflict, where the portfolio manager might feel pressured to act in a way that benefits the client who is providing the bonus, potentially at the expense of other clients or the overall integrity of the investment process. The standards emphasize that any compensation must not compromise the fiduciary duty owed to clients. If a portfolio manager is influenced by a client’s financial incentive, it could undermine their objectivity and loyalty to all clients. Therefore, if the vacation bonus is sourced from a client, it represents a violation of these standards as it jeopardizes the fairness and integrity expected in the portfolio manager’s professional conduct. This interpretation is essential for professionals in asset management as it underscores the importance of maintaining high ethical standards and avoiding any arrangements that could lead to perceived or actual favoritism or conflicts of interest.