Registered investment advisors are subject to regulation and oversight by the Securities and Exchange Commission (SEC), and are subject to the provisions of the Investment Advisers Act of 1940 (40 Act). We must at all times conduct our business within the law and regulations as administered by the SEC, and advisors are subject to periodic audit of their internal procedures and controls.
The first and most basic ethical layer is Federal law, as administered and enforced by the SEC under the terms of the 40 Act and all subsequent law. Advisors must always be in compliance with these provisions to be allowed to stay in business and avoid financial penalties. The ethical standards and expectations of many firms are far greater than these minimum legal requirements.
A second, higher level standard of ethical conduct is embodied in the provisions of the Code of Ethics and Standards of Professional Conduct of the CFA Institute, and the Code of Ethics and Professional Responsibility of the Certified Financial Planner Board of Standards. These two organizations–the CFA Institute, which confers the Chartered Financial Analyst, or CFA, designation, and the CFP Board, which confers the Certified Financial Planner, or CFP designation–are two of the most respected professional trade organizations in the areas of investment management and financial planning, respectively. A key part of the mission of each organization is to enforce a code of ethical conduct that goes far beyond that required by law. Many advisors hold the CFA or CFP designations, and are required as designees to ascribe to the code of conduct. Going beyond the requirements, adopting both sets of standards as required standards at the firm level, and requiring all employees, whether or not they hold the CFA or CFP designations, to honor and uphold these standards should be a priority of all advisory firms.
There is a third, and higher, level of standards of professional conduct that we expect at our firm, which is BOS firm policy, and it is embodied both in our BOS Compliance Manual and in the ethical standards by which we conduct our business. It is best captured by the statement “Always do what is in the client’s best interest,” which is closely aligned with the concept of fiduciary duty within our industry. We also think of it in terms of the following directive, “Treat clients the way you would like to be treated.”