CFA Institute Floats Code of Professional Conduct
November 22, 2004
NEW YORK - In conjunction with the launch of its new CFA Centre for Financial Market Integrity, on Nov. 8 the CFA Institute of Charlottesville, Va., floated an exposure draft of its new Asset Manager Code of Professional Conduct.
The Code recommends six voluntary standards for both the ethical and professional conduct of worldwide asset management firms in their asset management arrangements with investors of pooled funds, which include mutual funds and separate accounts.
The Code addresses six areas: loyalty to clients, the investment process and actions, trading, compliance and support, performance and evaluation and disclosures to clients. The code compels management firms to, among other things, place clients' interests first, have a reasonable basis for investment decisions and act according to clients' or funds' objectives.
Firms must also fairly allocate trades among clients and give priority to client trades over self-interest, appoint a compliance officer to implement policies and investigate complaints, use fair-market prices when necessary and ensure that performance information is complete, accurate and timely. Lastly, the code calls on companies to make all necessary disclosures to clients in a truthful and timely manner.
Comments Until Dec. 31
Commenters will have until Dec. 31 to critique and make suggestions for changes to these drafted standards. Standards are expected to then be finalized in early January 2005.
The CFA Institute, which changed its name earlier this year from the Association for Investment Management and Research (AIMR), is a not-for-profit organization that created and administers the globally-acknowledged Chartered Financial Analyst (CFA) designation, a program which first began in 1962. The CFA Institute counts 75,000 members, including 62,000 CFA charterholders and 100,000 CFA charterholder candidates across 51 countries, many of which work within the investment management industry as analysts, portfolio managers and financial advisers.
The newly released code is a template for U.S. managers but can also be used as a global template that could even be useful to unregistered hedge fund managers, said Kurt Schacht, the executive director of the CFA Centre for Financial Market Integrity.
These voluntary standards apply to firms, not individuals, Schacht noted. The CFA Institute already has a set of standards, dubbed the Code of Ethics and Standards of Professional Conduct, that CFA charterholders as individuals are required to adhere to.
In addition, while the new Asset Manager Code of Professional Conduct can be used for companies that don't now have a code of ethics, these standards are not set in stone and can be adapted to individual company use, Schacht added.
This past July, the Securities and Exchange Commission mandated that investment advisors adopt a formal, written code of ethics setting forth certain standards for professional conduct for both the firms and their supervisory personnel.
The CFA Institute first began discussing issuing its code back in May as part of its new effort to proactively establish industry-wide best practice standards through its new Centre's initiatives. The CFA Centre for Financial Market Integrity will have four offices, including one in New York, and will function as the Institute's research and policy division. This is the first of several topics and issues for which the Centre will be recommending policies and standards.
Also on tap for the Centre will be an independent advisory council comprised of well-known members of the investment management industry. Advisory council members include its chairman, John B. Neff, the retired managing partner of Wellington Management of Boston who served as the manager of the Vanguard Windsor Fund for 31 years. Other members include Gary Brinson, president of Brinson Investments of Chicago and founder of Brinson Partners, which managed the Brinson Funds until 2002, when the Brinson investment advisor and its funds were merged into UBS Asset Management.
Also on the advisory council is Alan Brown, group chief investment officer and vice chairman for State Street Global Advisors of Boston, Jelle Mensonides, the soon-to-be new chief executive officer of ABP Investments of New York, John Stannard, managing director of the Europe-based client communications group for Russell (formerly Frank Russell Co.) of Tacoma, Wash., Wally Stern, vice chairman and director of an affiliate of the Capital Group Cos. of Los Angeles, and Amy Yip, executive director of the Hong Kong Monetary Authority.