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Best Ethics, Best Execution

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The Association for Investment Management and Research, a non-profit organization that administers the Chartered Financial Analyst (CFA) program, began airing in November its first television and radio commercials. The ads drive home the claim that AIMR members adhere strictly to the AIMR Code of Ethics and put investor interests above their own. Also in November, AIMR issued guidelines aimed at encouraging investment management firms to establish their own “clear” guidelines in vital investor-protection areas such as disclosure of trade-management practices and conflicts of interest.

Founded in January 1990, AIMR was created from the merger of the Financial Analysts Federation (FAF) and the Institute of Chartered Financial Analysts (ICFA). (The CFA designation has existed for 40 years.) At present there are nearly 60,000 AIMR members in over 100 countries, 48,000 of whom hold the CFA credential.

The AIMR broadcast messages–”Today, only a small percentage of investment professionals hold the CFA credential,” reads one of the radio commercials. “Imagine if they all did.”–address the lapse in ethics experienced by some parts of the financial services industry. “I fear that all of us in the profession have been tainted by the Wall Street scandals,” said CFA charterholder and AIMR president/CEO Tom Bowman, in a prepared release. “We need to speak up and let people know that there are thousands of investment professionals out there who uphold high ethical standards and conduct themselves with professionalism.”

According to AIMR, its Code of Ethics is a set of principles that defines the professional conduct AIMR demands from its members, whether or not they hold the CFA charter. First introduced in the early 1960s as part of the CFA curriculum and examination program, the Code states that AIMR members shall:

Act with integrity, competence, dignity, and in an ethical manner when dealing with the public, clients, prospects, employers, employees and fellow members; Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession; Strive to maintain and improve their competence and the competence of others in the profession; Use reasonable care and exercise independent professional judgment; CFA charterholders are also required to submit annually a signed Professional Conduct Statement signifying their continued adherence to the Code and Standards and to disclose any ethical allegations that may have been made against them. Likewise, all 100,000 candidates enrolled in the CFA program worldwide are required to abide by the Code and Standards.

Trade Execution

The recently issued AIMR trade management guidelines were designed to enhance oversight of the trading function while disclosing any conflicts at investment firms. According to AIMR, the guidelines define best execution as a “well-informed trade-execution decision made with the intention of maximizing the value of client portfolios under the particular circumstances.” The guidelines recommend practices in three broad areas: trade policies and processes, disclosures, and record keeping. The guidelines encourage firms to: 1) Establish trade-management policies and procedures that seek to maximize the value of a client’s portfolio with that client’s investment objectives and constraints. 2) Establish clear firm-wide guidelines on broker selection and development of an approved brokers list. 3) Establish controls to monitor and evaluate broker performance and execution quality. 4) Ensure that clients are treated fairly in the execution of orders and allocation of trades. 4) Disclose their trade-management practices as well as their actual and potential trading-related conflicts of interests to current and prospective clients. 5) Maintain accurate and complete trading records documenting the firm’s efforts to achieve best execution. Jessica Mann, AIMR’s VP for clients and prospects, says that the guidelines are a response to investors’ needs. “Clients require more transparency regarding an investment manager’s trading techniques, venues, and agents,” Mann argues, “and any actual or potential trading-related conflicts of interest.”

Senior Editor Cort Smith can be reached at [email protected].


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