Ethical Implications of Compensation Arrangements in Research

Very Hard Research Objectivity Standards Compensation Arrangements

In a recent compliance review, a CFA charterholder working for a mid-sized investment firm was found to have a compensation structure that incentivized short-term sales of investment products. The firm's policy is to ensure that all research reports and recommendations are made objectively and without biases. However, the CFA charterholder's compensation arrangement is suspect because it is directly tied to the sales volume of the products that his research supports.

Given the CFA Institute's Research Objectivity Standards, which of the following statements most accurately describes the ethical implications of this compensation arrangement?

The compensation arrangement is appropriate as long as the charterholder believes in the integrity of his research.

The compensation arrangement violates the Research Objectivity Standards because it creates a conflict of interest that can bias the charterholder's recommendations.

The compensation arrangement is acceptable if the firm discloses this to clients in the research reports.

Hint

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