Compensation Arrangements and Research Objectivity

Very Hard Research Objectivity Standards Compensation Arrangements

As a Research Analyst at a mid-sized investment firm, you recently received bonuses tied to the performance of the equity funds you cover. During a recent compliance training, you learned about the CFA Institute's Research Objectivity Standards and their implications for compensation arrangements.

In particular, you are concerned about the potential for bias that may arise from these compensation structures, particularly if they encourage you to focus on funds that have the highest commission rather than those that may actually provide the best long-term value for your clients. Which of the following statements regarding your compensation arrangements best aligns with the ethical obligations under the CFA Institute's standards?

Compensation should reward analysts based solely on the overall performance of the firm's investment philosophy, regardless of individual fund results.

Analysts' compensation arrangements should not directly tie to fund performance, as this can create a conflict of interest undermining research integrity.

Providing bonuses based on the performance of specific equity funds is acceptable as long as full disclosure is made to clients regarding the possibility of biased research.

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