{"id":832,"date":"2019-07-12T17:36:00","date_gmt":"2019-07-12T17:36:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=832"},"modified":"2025-05-19T06:21:09","modified_gmt":"2025-05-19T06:21:09","slug":"standard-1b-independence-objectivity","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/ethical-and-professional-standards\/standard-1b-independence-objectivity\/","title":{"rendered":"Standard I(B) \u2013 Independence and Objectivity"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Standard I \u2013 Professionalism (2024\/2025 Level I CFA\u00ae Exam \u2013 Ethics \u2013 Module 3)\",\n  \"description\": \"This video lesson covers CFA Level 1 Ethics and Professional Standards, focusing on Standard I: Professionalism. It explains key concepts such as knowledge of the law, maintaining independence and objectivity, avoiding misrepresentation, and preventing misconduct. The instructor also discusses exam strategies, real-world examples, and recommended compliance procedures.\",\n  \"uploadDate\": \"2022-08-22T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/AKNjkuCMcUU\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=AKNjkuCMcUU\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/AKNjkuCMcUU\",\n  \"duration\": \"PT31M45S\"\n}\n<\/script>\n\n\n\n<p>[vsw id=&#8221;AKNjkuCMcUU&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;]<\/p>\n<p>Standard I(B) \u2013 Independence and Objectivity addresses the issue of gifts, payment, and favors that may compromise one\u2019s objectivity and service to clients. This includes advisors, analysts, and credit raters.<\/p>\n<p><!--more--><\/p>\n<h2>Compliance<\/h2>\n<p>It is recognized that third-party firms may seek to increase a CFA member\u2019s dependence upon its research\/market analysis, promotion of new securities offerings, or securities ratings.\u00a0 In these cases, it is not uncommon for a third-party firm to offer gifts such as event tickets, paid conference attendance, or job referrals. However, the Code of Standards specifies that its members must not accept these offers, as they can unduly influence an investment professional\u2019s obligations to remain independent and objective with regard to professional activities. Likewise, members working to earn a new investment allocation must not offer such gifts as hiring incentives.<\/p>\n<p>Special note is given to travel considerations. Although a firm may view the offer to fly its investment professionals on a third-party\u2019s chartered jet as a cost-savings measure for the firm, the opportunity for conflict of interest arises. These private transportation circumstances also allow a third party to influence CFA members\u2019 investment recommendations and offer the opportunity for a third party to probe for investment options outside the acceptable course of business. Similarly, offers to pay for lavish accommodations or pay for sponsored conferences and events often risk members\u2019 independence and objectivity.<\/p>\n<p>Receiving gifts from clients is distinguished from that of third-party influencers in that a client has already entered into a contractual relationship with the investment professional. In these cases, a client gift can be considered acceptable supplementary compensation. CFA members should disclose gifts from clients to their respective employers.\u00a0 If, perhaps, a client arrangement proceeds the investment professional\u2019s employment with a firm, then upon employment, the member should discuss past gifts with an employer. This allows an employer to determine the extent to which an employee may remain independent and objective.<\/p>\n<p>Standard I(B) \u2013 Independence and Objectivity also address retaliatory practices between sell-side and buy-side agents.\u00a0 Actions such as downgrading a stock can create a significant impact in the marketplace.\u00a0 Members must avoid the impulse to retaliate against analysts who lower stock ratings to preserve the independence and objectivity of those analysts.<\/p>\n<h2>Violation<\/h2>\n<p>To avoid violation of Standard I(B) \u2013 Independence and Objectivity, CFA members are encouraged to create a restricted list of analysts and rating agencies who refuse to distribute appropriately negative research for certain companies. Also, CFA members should restrict travel cost arrangements by third parties to avoid ethical conflict, limit gifts, restrict employees\u2019 investment in IPOs to limit conflict of loyalty, establish a formal independence and objectivity policy and appoint an officer to oversee compliance with these concerns.<\/p>\n<blockquote>\n<h2>Question<\/h2>\n<p>Grey Gordon, CFA, is a securities analyst assigned to K-Trail Flatbeds, a major producer of trailers for the trucking industry.\u00a0 K-Trail\u2019s headquarters are located in Meadow Lake, Saskatchewan, approximately four hours by automobile from the nearest airport. Gordon contacts K-Trail\u2019s management to gather information for a report he is preparing; the chief financial officer invites Gordon to meet the management team at K-Trail, indicating that he will send the company\u2019s private jet to fly Gordon to Meadow Lake and return him home the same day.<\/p>\n<p>Gordon estimates that he would require 18 hours to visit K-Trail using commercial travel. If Gordon accepts the offer and makes the trip to K-Trail\u2019s headquarters on the corporate jet, Gordon:<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Has not violated Standard I(B) \u2013 Independence and Objectivity.<\/li>\n<li data-tadv-p=\"keep\">Has violated Standard I(B) \u2013 Independence and Objectivity unless he discloses the trip and the payment of his travel expenses in his report on K-Trail.<\/li>\n<li data-tadv-p=\"keep\">Has violated Standard I(B) \u2013 Independence and Objectivity unless he reimburses Northwest for the cost of the trip.<\/li>\n<\/ol>\n<h5 data-tadv-p=\"keep\">Solution<\/h5>\n<p>The correct answer is A.<\/p>\n<p>Standard I(B) \u2013 Independence and Objectivity requires members to maintain independence and objectivity. Members should encourage clients to limit the use of corporate aircraft, but exceptions can be made if transportation would not otherwise be available or would be inefficient. This exception to the rule is of major importance.<\/p><\/blockquote>","protected":false},"excerpt":{"rendered":"<p>[vsw id=&#8221;AKNjkuCMcUU&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;] Standard I(B) \u2013 Independence and Objectivity addresses the issue of gifts, payment, and favors that may compromise one\u2019s objectivity and service to clients. This includes advisors, analysts, and credit raters.<\/p>\n","protected":false},"author":18,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[3],"tags":[13,12],"class_list":["post-832","post","type-post","status-publish","format-standard","hentry","category-ethical-and-professional-standards","tag-ethical-and-professional-standards","tag-independence-and-objectivity","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Standard I(B) \u2013 Independence &amp; Objectivity | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Learn how CFA professionals maintain independence and objectivity by avoiding conflicts of interest, gifts, and external influences.\" \/>\n<meta name=\"robots\" content=\"index, follow, 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