ASSET MANAGER CODE OF PROFESSIONAL CONDUCT OVERVIEW OF COMPLIANCE

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1 ASSET MANAGER CODE OF PROFESSIONAL CONDUCT OVERVIEW OF COMPLIANCE Presented in support of Putting Investors First Month and the Future of Finance initiatives.

2 THE FUTURE OF FINANCE STARTS WITH YOU cfainstitute.org/futurefinance 2

3 WEBINAR AGENDA Ethical Landscape Overview of Code Benefits for Asset Owners and Investment Managers Basic Provisions Making a Claim of Compliance True/False Quiz: Frequently Asked Questions 3

4 Actions related to behavior are the most important to building investors trust in investment managers ACTIONS Shown: % Very Important Is transparent about both successes and failures Clearly discloses unavoidable conflicts of interest Complies with voluntary codes of ethics Reports in simple metrics and language that I understand Maintains independence and objectivity Has strong past performance Has fee structures that align with my interests Offers insights on risk management Has staff with expert credentials Complies with global investment performance standards Reports on more than just returns Has no regulatory sanctions Shows evidence of engagement with companies in the 31% 53% 51% 50% 48% 48% 47% 46% 43% 43% 41% 40% 38% 4

5 2013 Edelman/CFA Institute survey of 2,000+ investors: Investors rank the attribute trusted to act in my best interest as most important when making a decision to hire an investment manager 5

6 RESTORING INVESTOR TRUST Asset managers can demonstrate their commitment to ethical conduct and putting investors first by complying with the Asset Manager Code of Professional Conduct. Learn more: 6

7 RESTORING INVESTOR TRUST Firms must be committed to protecting client interests by following fundamental ethical principles: Client interests come first Transparency Confidentiality Full and fair disclosure Avoid/Disclose conflicts of interest Fair dealing Reasonable care and prudent judgment Independence and objectivity Diligence Competence 7

8 RESTORING INVESTOR TRUST Asset Manager Code of Professional Conduct Voluntary best practice code of conduct for firms Principle-based, allows flexibility in implementation Derived from CFA Institute Code of Ethics & Standards Of Professional Conduct for CFA Charterholders Applicable to firms of various size, complexity Global standard of professional conduct NOT comply and explain no partial compliance 8

9 ASSET MANAGER CODE Benefits for Investors Provides a tool to quickly identify firms that commit to a comprehensive set of ethical principles and sound professional practices Helps with asking questions of and setting expectations for managers Assists in the initial and ongoing due diligence reviews of external managers Sets a uniform global standard for comparing the practices of managers from different regions. 9

10 ASSET MANAGER CODE Benefits for Asset Managers Identify and address gaps between firm process and best practice Reinforce a culture of integrity Sends message to investors, regulators and partners that the firm is voluntarily operating under rigorous ethical and professional standards Creates a strong reputation for a firm s values that can build investor confidence to retain and attract clients Provides a communication and promotional tool to demonstrate the value the firm places on protecting client interests 10

11 INCREASING COMPLIANCE WITH THE CODE Over 1,100+ Firms now claim compliance including: BlackRock BNP Paribas CIBC Duff & Phelps Investec Morgan Stanley Pictet PineBridge Investments Prudential Real Estate SBI Funds Management TD Asset Management T&D Life Group 11

12 INCREASING INTEREST ABOUT COMPLIANCE ASSET OWNERS NYSTERS Mass PRIM Virginia Retirement Systems CONSULTANTS Callan evestment RFP questions: Does your firm claim compliance with the Asset Manager Code? If not, why not? 12

13 WHAT DOES THE CODE COVER? Principles of Conduct 1. Act in a professional and ethical manner 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 13

14 WHAT DOES THE CODE COVER? A. Loyalty to Clients o o Client Interests First Confidentiality B. Investment Process and Actions o o o C. Trading o o Reasonable Basis Prudent Care Fair Dealing Inside Information Best Execution D. Risk Management, Compliance, and Support o o o Appropriate Policies Maintain Records Business Continuity Plan E. Performance and Valuation o Fair and Timely F. Disclosures o o Conflicts of Interest Investment Process 14

15 ASSET MANAGER CODE A. Loyalty to Clients Client interests before the managers interests (A.1) Confidentiality (A.2) Independence, objectivity, and loyalty (gifts & outside relationships) (A.3) 15

16 ASSET MANAGER CODE B. Investment Process and Actions Reasonable care and prudent judgment (B.1) Avoid market manipulation (B.2) Fair dealing (B.3) Reasonable and adequate basis (B.4) Follow stated investment strategy (B.5) Provide adequate information for investors to determine suitability (B.6) 16

17 ASSET MANAGER CODE C. Trading Insider trading prohibitions (C.1) Priority of client transactions (C.2) Soft dollars only for services that benefit the client (C.3) Best execution (C.4) Fair and equitable trade allocation (C.5) 17

18 ASSET MANAGER CODE D. Risk Management, Compliance and Support Abide by applicable laws, regulations, and the Code (D.1) Designate a Compliance officer (D.2) Independent 3 rd party confirmation of portfolio info (D.3) Maintain records (D.4) Employ qualified staff and have sufficient resources (D.5) Establish business recovery plans (D.6) Establish a firm-wide risk management process (D.7) 18

19 ASSET MANAGER CODE E. Performance and Valuation Fair, accurate, timely, and complete performance reporting (E.1) Fair market price valuation (E.2) 19

20 ASSET MANAGER CODE F. Disclosure Communicate regularly (F.1) Prominent, accurate, complete, effective (F.2) Include all material facts (F.3) Disclosure Subjects (F.4): Conflicts Regulatory Disciplinary Action Investment process Fees/Costs Soft Dollar Policies Performance Valuation Methodology Proxy Voting Policies Trade Allocation Policies Results of Audit/financial Review Material Changes at the Firm Risk Management Processes 20

21 ASSET MANAGER CODE Claim of Compliance Similar to the Global Investment Performance Standards Only after the firm complies with all the provisions of the Asset Manager Code [Insert name of manager] claims compliance with the CFA Institute Asset Manager Code of Professional Conduct. This claim has not been verified by CFA Institute. 21

22 ASSET MANAGER CODE Notification of Compliance Claim to CFA Institute Online Information gathering Communication to compliant firms 22

23 RECOGNITION BENEFITS Online List of Compliant Firms 23

24 HOW THE CODE CAN HELP YOU IMPROVE AND UPDATE YOUR COMPLIANCE EFFORTS Three simple steps to make your self-verified claim of compliance: Compare current code of ethics, policies and procedures with AMC provisions Make needed revisions Complete 1-page online registration statement Changes to the Code are infrequent, CFA Institute will inform you of any updates. 24

25 GETTING INTO COMPLIANCE Typical process firms follow to come into compliance Analyze Code for to identify any needed clarifications, interpretations Cross reference existing policies covering Code provisions. Personal Trading Policy Cross Trades Policy Broker Dealer Selection and Evaluation Policy Portfolio Management Policy Codes of Conduct and Ethics Privacy Policy Client/Model Guidelines Prospectus/Offering Memorandums Trade Aggregation and Allocation Policy Best Execution Policy Client Commissions Policy Gifts & Entertainment Policy Client Account Administration Policy New Client Account Documents Compliance Program Identify gaps Determine policy and procedural changes required to comply Inform business of policy changes and revisions Conduct training where appropriate Conduct on-going business reviews to confirm with revised policies and Code 25

26 1. GIPS/AMC RELATIONSHIP Claiming compliance with the Asset Manager Code is separate and distinct from compliance with the Global Investment Performance Standards (GIPS). True 26

27 2. GIPS COMPLIANCE Firms are required to claim compliance with GIPS if they claim compliance with the Asset Manager Code. False 27

28 3. EXISTING POLICIES To claim compliance with the Asset Manager Code, firms with well-established policies and procedures must rewrite them to explicitly include the provisions of the Asset Manager Code. False 28

29 4. GUIDANCE Firms are required to comply with the guidance to the Asset Manager Code provisions published by CFA Institute in order to claim compliance. False 29

30 5. CFA VERIFICATION CFA Institute does not review a firm s claim of compliance with the Asset Manager Code to verify compliance. True 30

31 6. SMALL FIRM A small investment firm that is a related to a larger parent company must wait for the parent firm and all other related entities to claim compliance with the Asset Manager Code before claiming compliance itself. False 31

32 ASSET MANAGER CODE Summary Voluntary Principle-based, Investor-focused Global Reinforces a culture of ethics internally Establishes a reputation for ethical practice Restores investor trust Promotes comparability of firms Increasing focus of asset owners 32

33 AVAILABLE RESOURCES Learn more: 33

34 Questions? Thank you for participating! Please complete the course evaluation that you will receive by . 34