Employees often have hobbies or side jobs that are completely different from their day jobs. But could those ever create an ethical dilemma? Read on and you decide.

Case

Gary Stansfield, CFA, works as a portfolio manager at Pitt Asset Management (PAM) based in New York. He has been actively involved with theatre since his college days and performs occasionally as a stand-up comedian at a comedy club after work hours. He is not compensated for his performances, but he is hoping to leave his job to launch an entertainment career. Audience members often show their appreciation for Stansfield’s act by giving him nominal tips. One night, Elaine Bennet, a broker at Newman Brokers, a firm that PAM often trades with and in sizeable volumes, stops at the comedy club with a group of friends while Stansfield is performing. Bennet and her friends thoroughly enjoy Stansfield’s comic routine and, as a token of appreciation, the group tips him $5,000. Stansfield should

1. accept the money and thank Bennet and her friends for their generosity.
2. accept the money but disclose it to his supervisor at PAM.
3. accept the money but seek approval from his supervisor before continuing to perform at the club if he anticipates further additional compensation.
4. not accept the money but thank Bennet and her friends for their compliments on his performance.

Analysis

This case potentially involves violations of the CFA Institute standards related to independence and objectivity and/or conflicts of interest. If Stansfield accepts the tip, it could be construed as gift to influence his conduct because some may find it implausible that an audience member would give such a generous tip irrespective of how much he or she might have enjoyed the comic sketch. The large tip he receives from Bennet and her friends after they attend his performance could be seen as an attempt by Bennet to influence Stansfield’s/PAM’s choice of brokers. But a key step of the CFA Institute Ethical Decision-Making Framework asks those facing an ethical dilemma to identify relevant facts. A number of relevant facts need to be determined to make an informed decision about the appropriate course of action for Stansfield. Does Bennet know Stansfield and know that Stansfield works for PAM or are they strangers? Does Stansfield have decision-making authority in choosing brokers on behalf of PAM (and if so does Bennet know this) or is Stansfield not involved in the decision about which brokerage firm to use? Does Stansfield know Bennet and who she works for? Was the tip primarily from Bennet or did it represent a collection from the whole group of friends? Do her friends work at Newman as well? Is one of them particularly wealthy and generous with struggling new entertainers? Assuming that the tip came primarily from Bennet and she knew Stansfield worked at PAM and believed Stansfield to have influence over PAM’s brokerage decisions, and if Stansfield knew Bennet and who she worked for, then best practice would be for Stansfield to politely reject the tip because it could be perceived to influence his fairness and objectivity when allocating trades. Although the information is incomplete, with these assumptions, the best response would be D. In working at the comedy club, Stansfield did not violate Standard IV(B): Additional Compensation Arrangements, which states that CFA Institute members must not accept any “compensation… that competes with or might reasonably be expected to create a conflict of interest with their employer’s interest” without written consent. Stansfield’s appearances at the comedy club did not interfere or compete with his day job at PAM, and he normally received tips that were minimal in value.

This case is based on facts provided by Tanuj Khosla, CFA, CAIA

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More About the Ethics in Practice Series

Just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

Each week, we post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions. We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the CFA Institute Code of Ethics and Standards of Professional Conduct and let us know which of the choices you believe is the right thing to do and why. If you are not a CFA Institute member, you can post your choice and reasoning in the comments section below. For CFA Institute members, we would like you to join the conversation in our new Member App and post your responses there. Later in the week, we will post an analysis of the case and you can see how your response compares.

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