Reminders for CFAs in Adhering to Compliance Standard, Client-Disclosure and Conflict Management Requirements
From the desk of Jim Eccleston at Eccleston Law
In 2023, the CFA Institute Board of Governors approved targeted revisions to the Standards of Professional Conduct, adding one new standard and updating two others. According to the CFA Institute, the changes were designed to reinforce long-standing principles in the Code and to clarify member and candidate obligations related to competence, client communication, and conflicts of interest.
New Competence Standard Within Professionalism
The Board created Standard I(E): Competence to underscore the expectation that investment professionals maintain the knowledge, skills, and abilities required for their roles. The new standard aligns directly with the Code of Ethics, which already instructs members and candidates to act with integrity, competence, and diligence. By making competence an explicit requirement, the CFA Institute highlights the ongoing obligation to sustain or improve the skill level necessary to meet evolving professional responsibilities.
The standard recognizes that competence varies based on the nature of a professional’s duties. Facts and circumstances will determine what level of knowledge or expertise is required in each case. The CFA Institute also clarified that Standard I(E) does not mandate any specific training or continuing-education pathway; members and candidates may demonstrate competence through any meaningful professional-development approach appropriate to their role.
Revised Client-Communication Standard Expands Required Disclosures
The Board also updated Standard V(B): Communication with Clients and Prospective Clients to add a new disclosure obligation. Members and candidates must provide information about the nature of their services and the costs associated with those services. This requirement supports a core objective of the Code and Standards: ensuring clients can make fully informed decisions about their financial interests.
Standard V(B) already requires disclosure of the general principles and processes used to analyze investments and construct portfolios, along with timely updates when those processes materially change. The cost-and-services disclosure fills a gap by making the financial impact of those services a required part of the conversation.
Revised Conflicts Standard Emphasizes Avoidance When Possible
The Board renamed Standard VI(A) to Avoid or Disclose Conflicts and updated its language to reflect an important priority: members and candidates should avoid conflicts of interest when reasonably possible. Although prior guidance encouraged avoidance, the text of the standard did not expressly include it.
The revised standard affirms that avoiding conflicts is preferred. When avoidance is not feasible, members and candidates must continue to make full and fair disclosure. All disclosures must be prominent, written in plain language, and provide enough information to allow clients, prospective clients, and employers to understand the conflict and its impact.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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