Question

The following scenarios refer to two analysts who are employed at Global Securities, a large brokerage firm.

Paula Linstrom, CFA, is instructed by her supervisor to write a research report on Delta Enterprises. Delta's stock is widely held by institutional and individual investors. Although Linstrom does not own any of Delta's stocks, she believes that one of her friends may own 10 shares of Delta. The stock currently sells for $25 per share. Linstrom does not believe that informing her employer about her friend's possible ownership of Delta shares is necessary.
Hershel Wadel, a member of CFA Institute, is asked by his supervisor to write a research report on Gamma Company. Wadel's wife inherited 500 shares of Gamma Company from her father when he died five years ago. Gamma stock currently sells for $35 per share. Wadel does not believe that informing his employer about his wife's ownership of Gamma shares is necessary.
According to CFA Institute Standards of Professional Conduct, which the following statements about Linstrom and Wadel's conduct is most accurate?

A. Neither of these analysts must disclose a potential conflict of interest.
B. Both of these analysts must disclose a potential conflict of interest.
C. Only one of these analysts must disclose a potential conflict of interest.

Answer 1

The correct option is B)

Step-by-step explanation:

According to the CFA Institute, when there is a clash between personal interests and official duties, then there is a conflict of interest.

Standard 4 requires that members and candidates of CFA must disclose any potential clash between personal interest and those of their clients and employers etc.

This rule serves to shield employers from any unknown variance of interest that has the potential to result in unethical decisions.

When a family or friend is involved, the potential for conflicting interest may arise and should be reported.

Cheers!