Catarina is a Dealing Representative for Ethical Financial which represents 20 different mutual fund families. Darlene is a fund manager from one of…

Avoidance is a method of managing conflicts of interest by preventing the conflict from occurring in the first place. In this scenario, Ethical Financial's policy requiring representatives to decline gifts from fund managers is a clear example of avoidance. By prohibiting the acceptance of such gifts, the firm eliminates the potential for the gift to influence the representative's professional judgment or create a perception of bias. This proactive measure ensures the conflict of interest—being unduly influenced by a fund company—never materializes.

A. "Potential" describes a type or state of a conflict of interest; it is not a method for managing or addressing one.
B. Disclosure involves informing clients about an existing conflict. Declining the gift prevents the conflict, making disclosure unnecessary in this instance.
D. Control involves implementing procedures to manage an existing conflict (e.g., increased supervision). Avoidance is a more direct strategy that eliminates the conflict entirely.

1. IFSE Institute, Canadian Investment Funds Course (CIFC), Part 1, Module 2, Chapter 2: Ethics and the Dealing Representative, Section: "Identifying and Responding to Conflicts of Interest". The text outlines the three primary methods for addressing conflicts: avoidance, control, and disclosure, defining avoidance as steering clear of conflicts entirely.

2. Canadian Securities Administrators, National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, Companion Policy 31-103CP, Part 13, Section 13.4 "Conflicts of interest". The policy discusses that registrants must address material conflicts in the best interest of the client, with avoidance being the preferred approach for conflicts that cannot be effectively managed through control or disclosure.