The newly created CFA Centre for Financial Market Integrity today released an exposure draft of a new Asset Manager Code of Professional Conduct that sets forth global ethical and professional standards for firms managing assets as separate accounts or pooled funds, including hedge funds and mutual funds.

The code was created to support investor protection by encouraging investment firms to voluntarily adhere to a strict set of ethical standards.  It provides, in effect, a “checklist” of ethical conduct that investors should expect from their asset managers, creating a higher level of confidence in asset managers that adopt and enforce the code.  

The code provides asset managers with specific and practical guidelines in six main areas, designed to apply to all facets of the manager-client relationship:

There are a number of graphics on the website http://www.metaphorbusinessgraphics.com in the Financial Services Regulation section,depicting issues affecting asset managers.

1. Loyalty to clients.  The code states that asset managers must maintain their independence and objectivity and put client interests first.  It specifies, for instance, that asset managers should refuse to participate in any business relationship or accept any gift that could reasonably be expected to affect their independence, objectivity or loyalty to clients.

2. The investment process.  For instance, asset managers should create an “investment policy statement” for each client and then always invest in a way that is consistent with the statement.

3. Trading.  The code provides guidelines for always seeking “best execution” in client trades.

4. Compliance.  This includes submitting accounts to an annual, independent audit to ensure accurate, complete information for clients, according to the code.

5. Performance evaluation.  Asset managers should, for example, use standardized performance measurement and use fair market price to value client holdings.

6. Disclosure.  This includes disclosing conflicts of interest, disciplinary actions, risk factors and fees.

The code was developed in consultation with more than two dozen investment professionals from the U.S., Europe and Asia. The CFA Centre for Financial Market Integrity welcomes written public comments on the code through Dec. 31, 2004.

Following the comment period, and upon publication of the final code, the CFA Centre will strongly encourage firms to require employees at every level to comply with its provisions.

“To be implemented effectively, the principles and standards embodied in the code must be supported by appropriate compliance procedures,” said Kurt Schacht, JD, CFA, executive director, CFA Centre for Financial Market Integrity.  “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.”

About the CFA Centre for Financial Market Integrity

The CFA Centre for Financial Market Integrity is the research and policy center of CFA Institute, the global, non-profit professional association that administers the prestigious Chartered Financial Analyst® (CFA®) program worldwide. Created to develop timely, practical solutions to global capital market issues, the CFA Centre advances investors' interests by promoting the highest standards of ethics and professionalism within the investment community worldwide.  Past standards and guidelines developed by CFA Institute – standards that will now be overseen by the CFA Centre for Financial Market Integrity – include the Global Investment Performance Standards (GIPS®), AIMR-Performance Presentation Standards (AIMR-PPS®), Research Objectivity Standards, Soft Dollar Standards and Trade Management Guidelines.

About CFA Institute

CFA Institute is the global, non-profit professional association that administers the CFA curriculum and examination program worldwide and, through its CFA Centre for Financial Market Integrity, sets voluntary, ethics-based professional and performance-reporting standards for the investment industry.  CFA Institute has 75,000 members in 120 countries.  Its membership includes the world's 62,000 CFA charterholders, as well as 130 affiliated professional societies in 51 countries and territories. CFA Institute is headquartered in Charlottesville, Va., USA, with additional offices in London and Hong Kong.  CFA Institute was known as AIMR (Association for Investment Management and Research) from 1990 to early 2004, and before that was two separate organizations whose roots go back to 1947.

The Asset Manager Code of Professional Conduct, in draft form is an important step on the road to reforming the ethical standards of asset managers.