What is considered a direct financial interest?

A direct financial interest is characterized by ownership interests that are held directly in an entity. This means that the individual or entity has a tangible stake in the client that can influence financial decisions and is evident in the ownership structure. In this scenario, options such as the direct ownership of stock or equity in a client company exemplify direct financial interests since they represent an actual claim to a portion of the assets or earnings of that client.

In contrast, a partnership share in a client refers to an interest that might be shared among multiple partners, and stock options granted by an employer typically relate to future benefits rather than direct ownership. Indirect investments through mutual funds involve pooling funds with other investors and do not give the investor a direct claim to individual securities held by the fund. Thus, these do not constitute direct financial interests, which is why ownership interests held directly in a client is the best example of such a financial relationship.