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CFA Institute Proposes Code of Ethics for Asset Managers

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CHARLOTTESVILLE, Va. (–The CFA Institute hopes its 75,000 members worldwide, including 62,000 Chartered Financial Analysts, will embrace a new code of ethics for asset managers produced by the group’s new research and policy center, the CFA Centre for Financial Market Integrity.

The CFA Centre on Monday [Nov. 8] released a draft of the code of conduct and will accept written public comments on it up until Dec. 31. The proposed code provides what CFA Centre officials described as “specific and practical guidelines” in six key areas: loyalty to clients, the investment process, trading, compliance, performance evaluation and disclosure.

In short, the code is designed to be a sort of checklist of ethical behavior to which asset management firms–including hedge funds and mutual funds–will voluntarily adhere and to which investors should expect adherence.

“Asset managers have a responsibility to assure investors that they will place investor interests in the highest regard,” said John Neff, chairman of the CFA Centre’s Advisory Council. “Adherence to the code demonstrates a commitment to integrity and sound ethics.”

Working with more than two-dozen investment professionals in the United States, Europe and Asia, the CFA Centre derived a 19-page code that lays out both the detailed code of conduct and recommendations and guidance for implementing it. The full code of conduct can be viewed here.

It is designed to apply to all facets of the manager-client relationship, according to a news release from the CFA Institute.

Under “Loyalty to clients,” the code stipulates that asset managers should maintain their independence and objectivity, refusing business relationships or gifts that could affect either.

The code also recommends that managers create an “investment policy statement” for each client and invest in ways that are consistent with that statement, for example avoiding practices designed to mislead investors by distorting prices or inflating trading volume.

For trading, managers should follow the code’s guidelines in seeking best execution.

Compliance involves submitting accounts to annual, independent audits.

“In writing the ethics code, the CFA Centre set out to create a recognizable standard that can provide investors with an extra measure of confidence that their asset managers are acting with prudence and diligence,” Mr. Neff said, adding that the code could serve as a template for asset managers facing regulatory deadlines to have such codes in place.

Kurt Schacht, executive director for the CFA Centre, said the principles and standards in the code have to be supported by internal compliance procedures. “Asset managers in markets around the world that do not require registration and licensing are especially encouraged to implement these code provisions to promote investor protection and self-regulation,” Mr. Schacht said in a statement.

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Contact Bob Keane with questions or comments at: [email protected].


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