Standard I (B) Professionalism - Independence and Objectivity

Guidance

• As long as the gift or the benefit doesn’t interfere with the analyst’s independence and objectivity, the gift/benefit is not in violation of the standards.
• Modest gifts are okay. The member should distinguish between gifts from clients and gifts from entities trying to influence their decisions.
• If a member accepts a gift from a client, he must disclose the gift to the employer.
• While maintaining investment banking relationships with the companies they follow, the members should not bow to any pressure to issue favourable research.
• For issuer-paid research, the compensation paid to the researcher should be limited and a flat fee structure is preferred, irrespective of the recommendations from the report.
• As far as possible, the members should pay for their own travel for attending events and tours that are sponsored by the company they are analyzing.

Examples

Suppose a financial analyst covers the research of a company’s stock in return of a future business relationship. As long as the analyst’s firm is not expected to recommend the stock and is just providing research coverage, it’s not a violation of the standard.

In another situation, an analyst in an investment firm receives free vacation passes from a company in return of recommending their stock. This will be a violation of the standard.

In another situation, Steve has accepted a one-year membership to a health club from a firm to which he directs trades. He does not notify his employer about this gift. This will be a violation of the Code and Standards as he must disclose the gift to the employer.