Learning Module 4: Asset Manager Code of Professional Conduct

Introduction

The Asset Manager Code (AMC) is a voluntary code for firms (not individuals) that manage client assets. * Goal: Foster a culture of ethics and assist investors in identifying firms that adhere to high standards. * Adoption: Must be adopted by the firm’s senior management/board. * Scope: applies to all employees of the firm.

General Principles of Conduct

Managers 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.

Specific Provisions (A-F)

A. Loyalty to Clients

  • Place client interests first: Always before the firm’s or employees’ interests.
  • Confidentiality: Protect client information.
  • Anti-Money Laundering (AML): Refuse relationships with potential criminals.
  • Gifts: Refuse gifts that could compromise independence.

B. Investment Process and Actions

  • Due Diligence: Use reasonable care and judgment.
  • Fair Dealing: Deal fairly with all clients (no favoritism).
  • Suitability: Ensure investments suit the client’s mandate.
  • Manipulation: Do not engage in market manipulation (price/volume distortion).

C. Trading

  • Best Execution: Maximize client portfolio value (considering price, cost, speed, likelihood of execution).
  • Soft Dollars: Use client brokerage only for research that benefits the client.
  • Allocation: Allocate trades fairly (e.g., pro-rata) among accounts.
  • Cross Trades: Only if beneficial to both clients and fair price is used.

D. Risk Management, Compliance, and Support

  • Compliance Officer: Must appoint a competent compliance officer.
  • Portfolio Valuation: Use fair market prices; independent third-party valuation is best practice.
  • Business Continuity: Have a disaster recovery plan.
  • Record Retention: Maintain records (CFA Institute recommends 7 years).

E. Performance and Valuation

  • Fair Representation: Performance must be fair, accurate, relevant, timely, and complete.
  • Methodology: Disclose how returns are calculated (gross/net) and use fair value for assets.

F. Disclosures

Managers must truthfully and thoroughly disclose: * Conflicts of Interest: Relationships, fees, soft dollars. * Regulatory Actions: Any disciplinary history. * Investment Process: Strategies, risks, use of derivatives/leverage. * Fees/Costs: Management fees and other costs charged to investors. * Voting Policy: How proxies are voted. * Trade Allocation Policy: How trades are split.

Key Differences: AMC (Firm) vs. Code & Standards (Individual)

  • Applicability: AMC applies to the firm; Code & Standards apply to individual members.
  • Compliance: Firms “Claim Compliance” with the AMC. Individuals “Adhere” to the Code & Standards.