Standard III(E) – Preservation of Confidentiality

Standard III(E) – Preservation of Confidentiality

Standard III(E) – Preservation of Confidentiality requires CFA members to maintain the confidentiality of current, former, and prospective clients under most circumstance

Compliance

Due to the relationship between investment professionals and clients, it is common to obtain private information (i.e., financial, familial) required in providing due care of a client’s resources.  CFA members and candidates are obliged to withhold personal information communicated by clients. This preservation of confidentiality extends to current clients and persons who once were but are no longer clients.

An exception Standard III(E) – Preservation of Confidentiality, are cases in which sharing personal information reveals an illegal nature of client activity.  In certain circumstances, a CFA member may be required to report illegal activities to appropriate authorities. It is expected that investment professionals will comply with applicable laws associated with maintaining the client’s confidentiality.  Therefore, if a member obtains information connected to illegal activity, then s/he is encouraged to consult an attorney or compliance officer for advice regarding disclosure.

Due to the electronic nature of current business practices, CFA members must take added precautions to preserve client privacy. Stricter data security regulations have been passed in recent years to prevent accidental breaches of confidentiality. Although it is not expected that CFA members become experts in data security, they should ensure they have proper training related to their respective firms’ policies.

Violation

To prevent a violation of Standard III(E) – Preservation of Confidentiality, one must become familiar with the context of legal vs. illegal client activity in the eyes of local laws.

Additionally, according to the CFA Code of Ethics, all members and candidates are required to “maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.”  This extends to maintaining up-to-date training on client loyalty and confidentiality, including data security.

Ultimately, when induced to share client information, one should consider whether that disclosure is work-related and done to benefit the client. Will sharing that information allow a member to provide a better service? If the answer to this question is “no,” then one should reconsider betraying client confidence.

Question

James Heckman, the owner of HGI Construction, is aware that Elgrow Corporation is in need of capital improvements to a number of its facilities. Prior to approaching Elgrow, he wants to know if it’s worth the substantial amount of time to prepare a building proposal. His neighbor is an investment analyst for Smith Capital, who manages investments for Elgrow Corp.  During a weekend barbecue at his home, Heckman approaches the analyst to ask a few questions about Elgrow’s financial position, sharing his plans to approach the company with a building proposal.  Related to Standard III(E) – Preservation of Confidentiality, the investment analyst should:

  1. Share what she knows in order to help Elgrow Corporation get the best proposal possible.
  2. Not disclose private information because it could be a violation of Standard III(E) – Preservation of Confidentiality.
  3. Not share information because she thinks HGI Construction is engaged in illegal activities.

Solution

The correct answer is B.

Client loyalty is owed to Elgrow Corp. Therefore, the investment analyst must maintain client confidentiality related to Elgrow’s financial position, and any recommendations related to capital improvements.  Sharing private information is likely a violation of Standard III(E) – Preservation of Confidentiality.

Shop CFA® Exam Prep

Offered by AnalystPrep

Featured Shop FRM® Exam Prep Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Shop Actuarial Exams Prep Shop Graduate Admission Exam Prep


    Sergio Torrico
    Sergio Torrico
    2021-07-23
    Excelente para el FRM 2 Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
    diana
    diana
    2021-07-17
    So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts. The fun light-hearted analogies are also a welcome break to some very dry content. I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
    Kriti Dhawan
    Kriti Dhawan
    2021-07-16
    A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them. Thank you ! Grateful I saw this at the right time for my CFA prep.
    nikhil kumar
    nikhil kumar
    2021-06-28
    Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
    Marwan
    Marwan
    2021-06-22
    Great support throughout the course by the team, did not feel neglected
    Benjamin anonymous
    Benjamin anonymous
    2021-05-10
    I loved using AnalystPrep for FRM. QBank is huge, videos are great. Would recommend to a friend
    Daniel Glyn
    Daniel Glyn
    2021-03-24
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    2021-03-18
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.