15.1 Articles 1–4: Loyalty, Confidentiality, Reporting & Funds

Use the current Code

ARM members subscribe to the IREM Code of Professional Ethics as a condition of membership. The current Code is organized into 14 articles. Exam answers should follow the article actually involved rather than an invented older numbering system. Articles 1 through 4 move from the manager's relationship to the client and employer, through confidential information and reporting, to physical protection of client money.

Article 1 — Loyalty to Client, Firm, and/or Employer

Use a controlled ethics analysis:

• identify the client, employer or firm, and affected parties;
• verify the current Code article and governing law;
• disclose or escalate through the authorized path;
• preserve accurate records and client funds; and
• document and follow through on the ethical decision.

Article 1 requires loyalty to the interests of the client and the employer or firm with which the member is affiliated. The member must be diligent in maintaining and protecting their interests and property and must avoid activity reasonably construed as contrary to those interests. If the firm's or employer's interests conflict with the client's, the Code says the client's interests take precedence.

Loyalty is not permission to violate law, conceal facts, or exceed the management agreement. A manager who receives conflicting instructions should identify the conflict, protect urgent interests, verify authority, document the issue, and escalate. For example, a management company may prefer a vendor because it simplifies regional purchasing, while the client has an approved procurement requirement. The ARM should disclose the conflict and follow lawful client authority rather than silently choosing what benefits the firm.

Loyalty also requires diligence. Ignoring a foreseeable roof failure, deadline, or insurance condition can harm the client even if the manager received no personal benefit. Article 8 separately addresses due diligence in managing assets; one event can implicate more than one article.

Article 2 — Confidentiality

Article 2 prohibits disclosure to a third party of confidential or proprietary information about the client's business or personal affairs without the client's prior written consent, unless disclosure is required or compelled by applicable law or regulation.

Examples can include nonpublic sale strategy, financing pressure, proprietary budgets, security information, vendor negotiations, owner personal data, and internal business disputes. Determine whether the information is actually confidential, who the client authorized, and whether a legal demand requires production. Route subpoenas, regulator requests, or uncertain disclosure duties to authorized counsel or leadership; do not ignore them or disclose more than required.

The Code's express rule is about client information. Resident and employee data also require protection under applicable privacy, consumer-report, medical, employment, lease, and company rules. Do not attribute every privacy duty to Article 2 or claim an unlimited exception not in the Code.

Prior written consent should identify the information, recipient, and purpose. A casual verbal statement from an unauthorized person is not a sound basis. Use secure channels and minimum necessary access. Confidentiality does not permit falsifying a report, hiding a hazard from lawful authorities, or obstructing a required disclosure.

Article 3 — Accounting and Reporting

Under the management agreement, the member must use reasonable efforts to provide accurate, auditable financial and business records for each managed asset, make them available for client inspection at reasonable times, and furnish reports at mutually agreed intervals. The member must not exaggerate, misrepresent, or conceal material facts about the asset or a related transaction.

“Auditable” means a knowledgeable reviewer can trace reported totals to supporting records and authorization. The manager should maintain ledgers, invoices, contracts, approvals, reconciliations, variance explanations, and other evidence. Estimates and accruals may be legitimate, but they must be supported and labeled consistently.

Ethical pressure often appears near a reporting date. Delaying invoices to improve a month's net operating income, changing occupancy definitions without disclosure, removing a known claim, or recognizing unearned revenue can mislead the client. The correct response is to report according to the agreed accounting basis, correct errors transparently, and explain material uncertainty.

If an error is discovered, preserve the original evidence, determine the scope, notify authorized parties, post an approved correction, and document the effect. Secretly overwriting history creates a second problem.

Article 4 — Protection of Funds

Article 4 makes the member a fiduciary for client funds. It prohibits mixing personal or company funds with client funds and prohibits using one client's funds for another client's benefit. Client money must be kept in a fiduciary account in an insured financial institution or handled as otherwise directed in writing by the client. The member must use due diligence to protect client funds against reasonably foreseeable contingencies and losses.

Commingling is prohibited mixing. Conversion is unauthorized use or control of another's money. Temporarily moving Client A's cash to cover Client B's payroll violates Article 4 even if repayment is planned and no loss ultimately occurs.

Article 4 does not establish every jurisdiction's security-deposit rule or require the same account design for all properties. Applicable law, written client direction, bank authority, and the management agreement also govern. Sound controls include authorized signers, separated duties, dual approval where appropriate, secure credentials, prompt intact deposits, bank reconciliation, and independent review.

Integrated scenario

A regional executive tells an ARM to omit a known $90,000 repair commitment from the client's monthly report so the firm earns a performance bonus. The ARM should preserve the support, refuse misleading treatment, follow the agreed reporting basis, escalate through authorized channels, and protect the client. The issue involves loyalty under Article 1 and accurate reporting under Article 3; if money is moved improperly, Article 4 also applies.

Exam approach

Identify the exact article, the protected party or asset, and the authorized path. Choose transparency, traceable records, written consent or direction where the Code requires it, and protection of client funds. Reject answers that justify concealment because the client may never discover it or because repayment is planned.