Views on improving the integrity of global capital markets
14 June 2018

Ethics in Practice: Loyalty to Firm or Clients’ Interests First? Case Analysis Now Included

CFA Institute Ethical Decision-Making Framework

Check out the analysis below to see how you did in assessing this week’s case (11 June)

A portfolio manager may work for a firm that offers proprietary investment products, and they may be the best product for most clients. But what happens if they are not the best choice and you choose to not sell them to clients? Read on about one portfolio manager’s situation and then join the conversation to let us know whether his actions violated the CFA Institute Code of Ethics and Standards of Professional Conduct.


Kuznetsov is a portfolio manager for a large investment firm that encourages its employees to sell proprietary investment products to their clients. Kuznetsov complies with this directive and within a year becomes the firm’s top seller of these investment vehicles. He receives stellar performance reviews and a large bonus. But Kuznetsov eventually determines that the firm’s investment products are underperforming and more expensive than other outside investment options that are suitable for his clients and present a better chance for growth. So, he sharply cuts back on purchasing the firm’s investment products for his clients. Although his supervisor puts increasing pressure on him to resume selling the firm’s products, Kuznetsov refuses. He complains several times to management that he is being pressured to place the firm’s interest above his client’s interests. He surreptitiously records several conversations with his supervisor and makes copies of client records that document what he considers to be his supervisor’s inappropriate conduct. When management ignores his complaints and his supervisor begins giving Kuznetsov poor performance reviews, he files a complaint with the local regulator against his supervisor and his firm, providing the recordings and copies of client files as evidence. After the firm becomes aware of Kuznetsov’s actions, he is fired. Kuznetsov’s actions are

  1. inappropriate because he failed to keep client information confidential.
  2. appropriate because he is protecting client interests.
  3. inappropriate because he violated his duty of loyalty to his employer by taking his dispute with his supervisor to the regulator, exposing the employer to financial and reputational harm.
  4. inappropriate because he could have met his ethical obligation by dissociating from the unethical activity of his supervisor.


This case involves CFA Institute Standard IV(A): Duties to Employer – Loyalty, which states that CFA Institute members “must act for the benefit of their employer and not…divulge confidential information or otherwise cause harm to their employer.” But the interests of an investment professional’s employer are secondary to protecting the interests of clients. Circumstances may arise in which investment professionals can engage in conduct contrary to their employer’s interests in order to comply with their duties to clients. In pressuring Kuznetsov to sell more expensive and less profitable investment products to his clients, the employer is acting contrary to client interests.

In general, Kuznetsov’s conduct in recording his conversations with his supervisor, copying client records, and reporting the employer to the regulator are justified because he is attempting to protect his clients’ interests by calling out his employer’s unethical (and possibly illegal) conduct. (However, certain jurisdictions may have laws against surreptitiously recording conversations without the other party’s consent.) Dissociating from the conduct may have removed him from the situation, but it would not be effective in this case because it would not necessarily prevent Kuznetsov’s employer from taking advantage of its clients and reassigning their accounts to employees who would engage in the misconduct. His “whistleblowing” activity is not a violation of the Code and Standards in these circumstances (Answer B).

This case is based on a US SEC enforcement action from 2015.

Have an idea for a case for us to feature? Send it to us at

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. The Ethics in Practice series gives you an opportunity to “exercise” your ethical decision-making skills. 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 using the CFA Institute Ethical Decision-Making Framework and through the lens of the CFA Institute Code of Ethics and Standards of Professional Conduct. Then join the conversation and let us know which of the choices you believe is the right one and explain why. Later in the week, we will post an analysis of the case and you can see how your response compares.

Image Credit: ©CFA Institute

About the Author(s)
Jon Stokes

Jon Stokes was the Director of Ethics and Standards Education at CFA Institute. His responsibilities included design and creation of on-line ethics education, development and maintenance of the CFA Institute Code of Ethics and Standards of Professional Conduct, and the design and management of the CFA Institute Ethical Decision-Making and Giving Voice to Values education programs. Stokes holds a JD degree.

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