Governance and ethics (Week 12)

Question 1

B. Investment Process and Actions

Managers must:

Answer 1

1. Use reasonable care and prudent judgment when managing client assets.
2. Not engage in practices designed to distort prices or artificially inflate trading volume with the intent to mislead market participants.
3. Deal fairly and objectively with all clients when providing investment information, making investment recommendations, or taking investment action.
4. Have a reasonable and adequate basis for investment decisions.
5. When managing a portfolio or pooled fund according to a specific mandate, strategy, or style: a. Take only investment actions that are consistent with the stated objectives and constraints of that portfolio or fund. b. Provide adequate disclosures and information so investors can consider whether any proposed changes in the investment style or strategy meet their investment needs.

Question 2

Asset Manager Code of Professional Conduct

A. Loyalty to Clients

Answer 2

Managers must:

1. Place client interests before their own.
2. Preserve the confidentiality of information communicated by clients within the scope of the Manager–client relationship.
3. 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.

Question 3

Duties to Clients – Performance Presentation

Standard III(D)

Answer 3

Standard III(D)

–Reasonable efforts’ to ensure fair, accurate and complete

–Emphasis: not to mislead (Cannot provide misprepreestation of your historical performance; may make investor believe that this performance will likey be repeated consitently in the future)

Question 4

Duties to clients - •Suitability

Standard III(C)

CFA Standards of Practice

Answer 4

Standard III(C)

Provide apropriate advice to clients. Look at objectives and circumstances of the client

For reitrees who have low risk tolerance and clear objective of geenerating income for post retirement, advising them investing in higly risky financial assets is not appropriate

Question 5

CFA Standards of Practice

•Conflicts of Interest – Disclosure

Examples:

Answer 5

beneficial ownership of securities; directorships; fee arrangements; broker market-making and IB activities; etc

E.g. commission, brokerage anything that might lead to inapprproate advice to client ornot bet interest of client, disclose first

Question 6

•Conflicts of Interest – Disclosure

Answer 6

–Disclose all matters that could impair independence and objectivity

–Emphasis: clarity of communication

Question 7

•Standard VI(B): Conflicts of Interest – Priority of Transactions

Answer 7

–Clients, then employers, have priority over personal interests

Question 8

Conflicts of Interest – Referral Fees

Answer 8

–Disclose any referral fees, e.g. front-end loads and trailers

Question 9

•CFA Asset Manager Code of Professional Conduct

C

Answer 9

C.Trading

•No insider trading; clients have priority; use of commissions; best execution

Question 10

•CFA Asset Manager Code of Professional Conduct

D

Answer 10

D.Risk management, compliance and support

Establish comprehensive policies and procedures

Question 11

•CFA Asset Manager Code of Professional Conduct

C

Answer 11

C.Trading

•No insider trading; clients have priority; use of commissions; best execution

Question 12

•CFA Asset Manager Code of Professional Conduct

b

Answer 12

B.Investment process and actions

Care and prudence; don’t distort the market; deal fairly with clients; reasonable basis for investments; understand and work to client objectives

Question 13

•CFA Asset Manager Code of Professional Conduct

Answer 13

General principles of conduct – “responsibilities to clients”

Question 14

•CFA Asset Manager Code of Professional Conduct

E and F

Answer 14

EPerformance and Valuation

•Fair, accurate, relevant, timely and complete

F.Disclosures

•Timely and accurate communications; disclose, disclose, disclose