The General Principles of Conduct and the Asset Manager Code of Professional Conduct

Responsibilities to Clients

The following is an excerpt from the 2022 CFA Institute Curriculum:

The following are the responsibilities of managers to their clients. A manager must:

1. Be professional and ethical at all times.
2. Focus on the client’s benefit, not their own.
3. Be independent and objective.
4. Be as skilled, competent, and diligent as possible.
5. Be timely and accurate in communicating with clients.
6. Comply with all capital market regulations.

Asset Manager Code of Professional Conduct

The following is an excerpt from the 2022 CFA Institute Curriculum:

1. Loyalty to Clients

   Managers must:

   1. Put client interests first.
   2. Always seek the confidentiality of client information.
   3. Not receive gifts that could be expected to affect their independence, objectivity, or loyalty to clients within a reasonable manner.
2. Investment Process and Actions

   Managers must:

   1. Invest client assets prudently and carefully.
   2. Not manipulate capital markets.
   3. Treat clients fairly, not favoring any one client unnecessarily.
   4. Always make investment decisions based on sound research and reasoning.
   5. When managing a portfolio or pooled fund according to a specific mandate, strategy, or style:
      1. Invest assets by observing the relevant portfolio goals and limitations.
      2. Allow clients to weigh investment decisions themselves by providing useful and relevant information.
   6. When managing separate accounts and before providing investment advice or taking investment action on behalf of the client:
      1. Evaluate and understand the client’s investment objectives, tolerance for risk, time horizon, liquidity needs, financial
         constraints, any unique circumstances (including tax considerations, legal or regulatory constraints, etc.), and any other
         relevant information that would affect investment policy.
      2. Only use investments suitable for each particular client.
3. Trading

   Managers must:

   1. Not use insider information to gain an unfair advantage over other market participants.
   2. Invest first for the benefit of the client, and then a manager may invest for the benefit of themselves.
   3. Use commissions generated from client trades for their benefit.
   4. Use the best possible brokerage services only in an attempt to benefit the client.
   5. Establish policies relating to fair client trades.
4. Risk Management, Compliance, and Support

   Managers must:

   1. Develop comprehensive investment policies meant to comply with not only the coding standards but also all local regulations.
   2. Hire a competent compliance manager.
   3. Analyze and assess the validity of any information used as a research input.
   4. Maintain appropriate records.
   5. Thoroughly investigate, analyze, implement, and monitor investments through the use of qualified staff only.
   6. Have a written business continuity plan.
   7. Institute a comprehensive and firmwide risk management process to protect against unnecessary loss.
5. Performance and Valuation

   Managers must:

   1. Managers should never report false performance.
   2. Use fair-market prices to value client assets.
6. Disclosures

   Managers must:

   1. Keep clients up to date with accurate, honest, and timely communications.
   2. Keep compliant communications readable, understandable, and honest.
   3. Ensure clients can understand communications by including all relevant information (key facts must be included).
   4. Disclose the following:
      1. Conflicts of interests.
      2. Regulatory or disciplinary action going against the manager.
      3. All information regarding lock-up periods, strategies, risk factors, and use of derivatives and leverage.
      4. Management fees and other investment costs, and how clients may calculate those costs themselves.
      5. The use of any soft or bundled commissions.
      6. The performance of clients’ investments on a regular and timely basis.
      7. All valuation methods and formulae.
      8. Shareholder voting policies.
      9. Trade allocation policies.
      10. Results of the review or audit of the fund or account.
      11. Significant personnel or organizational changes that may have occurred (loss of a key executive, for example).
      12. Details regarding the risk management processes of the firm.

    

   Question

   Which of the following is an incorrectly stated item from Part B (Investment Process and Actions) of the Asset Manager Code of Professional Conduct?

   1. Use reasonable care and prudent judgment when managing client assets.
   2. Not engage in practices designed to distort prices or artificially inflate trading volume with the intent to mislead market participants.
   3. Deal fairly and objectively with all clients when providing investment information.

   Solution:

   The correct answer is C.

   Choice C is incomplete in that it leaves out:

   “making investment recommendations, or taking investment action”

   The full bullet point from the Code reads as follows:

   “Deal fairly and objectively with all clients when providing investment information, making investment recommendations, or taking investment action.”

   Both choices, A and B are the full and correct portion of Part B of the Asset Manager Code of Professional Conduct.

   Ethical and Professional Standards: Learning Module 4: Asset Manager Code of Professional Conduct; Los 4(b) Explain the ethical and professional responsibilities required by the six General Principles of Conduct of the Asset Manager Code