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More than Words: The Asset Manager Code of Professional Conduct

The perception and validation of ethical standards in investment professionals builds client trust in an advisor and strengthens the resolve to stay the course when the advisor’s strategy is out of favor.

(Estimated reading time: 2 min, 15 sec)

If you think about it, the fundamental conclusion for all manager research is the development of trust in the people, philosophy, processes, and performance promise of an investment management firm. Most investment firms have a rules-based ethics policy. These statements can be very detailed and run scores of pages. Rules-based policies are necessary for regulatory and legal compliance issues.

Principles-based ethics policies are much more practical for daily guidance in meeting these regulatory and legal obligations. Research has shown that people tend to behave more ethically when they are regularly reminded to do so. If a professional follows basic principles of ethical behavior, she will be able to make most decisions correctly without having to consult with Compliance or the policy manual. For instance, “Thou shall not steal” is a fundamental principle immune to interpretation.

Another principles-based ethics policy is the CFA Institute’s Asset Manager Code of Professional Conduct (AMC). The AMC principles are easy to remember and serve as a ready reminder to investment professionals to behave ethically.

Six Key Principles for Asset Managers (applied to all areas of firm operations)

Managers have the following responsibili­ties to their clients. They must:

  1. Act in a professional and ethical manner at all times.
  2. Act for the benefit of clients.
  3. Act with independence and objectivity.
  4. Act with skill, competence, and diligence.
  5. Communicate with clients in a timely and accurate manner.
  6. Uphold the applicable rules governing capital markets.

— CFA Institute’s Asset Manager Code of Conduct

Over 1,300 investment management firms have adopted the AMC principles in addition to their own rules-based codes of ethics. Adoption of the AMC for a large firm is not a trivial process, in many cases taking the firm’s legal and compliance groups over a year to confirm alignment of the code with the firm’s own poli­cies, operations, and business practices.

Investment managers know that if they adopt the AMC they must be able to demonstrate their compliance with the Code to cli­ents and regulators. An annual renewal of this process is required by the CFA Institute. This should give fund sponsors and consultants more confidence in their own due diligence and documentation of managers that have adopted the code.

 

Ron Peyton, Callan’s Chairman & CEO, is the Chair of the Asset Manager Code Advisory Committee. He spoke at the CFA Institute’s annual conference in Philadelphia in May 2017 on the topic, “Meeting Investor Demand for Transparency and Trust: Complying with the CFA Institute Asset Manager Code.”