Ethical Dilemma in Client Treatment and Transparency

The following scenario presents a potential ethical dilemma faced by a financial analyst working for an investment firm. You are an analyst at XYZ Investments, where you are responsible for providing investment recommendations to a range of clients, including high-net-worth individuals and institutional investors.

Recently, your colleague has been developing a new investment product that transitions traditional mutual funds into a new ESG (Environmental, Social, and Governance) fund format. During this process, you discover that the product has been marketed selectively to favored clients of your firm, with less emphasis on the true benefit of the product to all clients. Furthermore, you notice that certain selection criteria for the fund have not been communicated transparently, potentially influencing client decisions.

Additionally, your firm has recently started giving kickbacks to financial advisors who sell this product, unbeknownst to the clients, as a means to incentivize sales. As a financial analyst, you find yourself torn between loyalty to your firm and your ethical duty to your clients.

In light of this situation, discuss the ethical considerations, legal obligations, and potential courses of action you should take in addressing this dilemma, ensuring to incorporate the CFA Institute’s Code of Ethics and Standards of Professional Conduct.