Asset Managers Code

I saw someone write that the Asset Managers Code (I think this is what it is called) is likely to show up on the exam in the ethics section. I was wondering if others agree and if so why? When I went through the ethics book (granted a long time ago) I don’t remember them emphasizing this that much. What exactly is the Asset Managers Code?

I think that it will be on the exam due to the fact that a question or two popped up on the CFAI online freebie exam… it’s their baby just like the GIPS so I think that we will see a question or two. CFAI book has about 10 or so pages about it, I would read it if I were you, just to be safe. All I can remember right now is: Asset manager code applies to investment firms only it calls for an appointment of a compliance officer who can report to either CEO or the board it’s voluntary it calls for at least annual meetings between clients and advisor it calls for a business contingency plan past records should be kept at least 6 years and can be kept either in electronic or paper form that’s all I can remember… hope it helps

***** PER mcg79 yesterday **** Asset manager code new Posted by: mcg79 (IP Logged) [hide posts from this user] Date: May 26, 2008 05:57AM In the spirit of recent posts, some notes on the asset manager code reading … 1. Loyalty to clients 1.1. Place client interests above own + Should implement policies to ensure that client interests supersede manager interests in all aspects, including investment selection, transactions, monitoring, and custody. 1.2. Preserve confidentiality of information communication within client-manager relationship + Should preserve confidentiality of all information obtained from client + Does not apply to suspected illegal activities involving the client 1.3. Refuse to participate in relationships or accept gifts that could reasonably be expected to impact upon independence, objectivity or loyalty to clients + Do not accept gifts of more than a minimal value + Should prohibit the acceptance of any cash gifts + All gifts should be disclosed to supervisor, compliance officer or senior management + Should not preclude multiple business relationships with a client, but this must be disclosed 2. Investment Process and Actions 2.1. Use reasonable care and prudent judgment when managing client assets + Follow investment parameters set forth by client and the principle of balancing risk and return 2.2. Not engage in practices designed to distort prices + Transactions-based manipulation: Transactions that artificially distort price or volume to give impression of activity or price movement Trading in illiquid stocks at the end of a measurement period with the intent to exploit and manipulate the price of an asset or related derivate + Information based manipulation Spreading knowingly false rumors 2.3. Deal fairly when providing investment info, making recommendations or taking investment action + Cannot give preferential treatment to detriment of other clients + Different service levels are allowed as long as these are disclosed and made available to everyone 2.4. Have a reasonable and adequate basis for investment decisions + Must only act after conducting sufficient due diligence about specific strategies or investments + Complex strategies should be communicated to client and subject to stress testing 2.5. When managing a pooled fund according to a specific mandate: + Only take investment actions consistent with stated objective and constraints. Flexibility should be agreed on with clients. + Provide adequate disclosures and information to enable client to judge whether change in strategy or style meets investment needs 2.6. When managing separate accounts and before providing investment advice or taking investment action on behalf of client: 2.6.1. Evaluate investment objective and constraints and construct IPS + IPS should be reviewed with client at least annually and whenever circumstances dictate + IPS should specify schedules for review and evaluation + Must agree on appropriate benchmark + IPS should serve as basis for strategic asset allocation 2.6.2. Determine that investment is suitable to client’s financial situation - Must evaluate all investment actions and strategies in light of each client’s circumstances 3. Trading – Managers must: 3.1. Not act on material nonpublic information that could affect value of public security + Information is non-public until it is widely disseminated in the marketplace + Information is material if a reasonable investor would consider it important + Mosaic theory allows combination of material public information with non-material non-public information 3.2. Give priority to investment made on behalf of the client over those that benefit own interest + Must not execute own trades in the same security prior to client transactions + In some pooled funds or limited partnerships, managers can put their own capital at risk alongside that of clients, but only if it provides proper incentive and does not disadvantage clients + Firms should require employees to obtain approval for any personal investments in IPOs or private placements + Managers could require employees to provide compliance officer with copies of trade confirmations each quarter 3.3. Use commissions generated from client trades only to pay for investment-related products or services that directly assist the manager in its investment decision making + The investment decision-making process can be considered the qualitative and quantitative process and the related tools used by the managers + Soft dollar arrangements should be disclosed 3.4. Maximize client portfolio value by seeking best execution for all client transactions + Should consider commissions, timeliness of executions, ability to maintain anonymity, minimizes incomplete trades and minimizing market impact 3.5. Establish policies to ensure fair and equitable trade allocation among client accounts + Block trades or allocations on pro-rata basis are both methods that ensure a fair allocation + For IPOs or secondary offerings, should ensure that all clients for whom investment is suitable can participate + Trade allocation policies should specifically address how IPOs and secondary offerings are handled 4. Compliance and support – Managers must: 4.1. Develop and maintain policies and procedures ensuring compliance with Code provisions + Detailed, firm-wide compliance policies should be documented 4.2. Appoint a compliance officer to administer policies and investigate complaints + Existing employees can serve as compliance officers + But individual should be independent from investment and operations personnel + Compliance officer must report directly to the CEO or Board + Must regularly convey to employees the requirements to adhere to compliance policies + Should require all employees to acknowledge receipt and understanding of the Code, and that they will comply with it and report any suspected violations 4.3. Ensure accuracy of portfolio information and arrange for 3rd party review + Confirmation of portfolio information can take form of audit or review, or copies of account statements and trade confirmations from the custodian bank where client assets are held 4.4. Maintain records for an appropriate period of time + Must maintain records that substantiate investment actions, scope of research and basis for conclusions + Must also retain compliance related records and any records of violations + Can be maintained either in hard copy or electronic form + Managers must determine the appropriate minimum time frame + In the absence of regulation, records should be maintained at least SIX years 4.5. Must employ adequate resources to deliver services promised to clients + Must have high quality staff + Must have sufficient back office 4.6. Establish a business continuity plan to address disaster recovery or periodic disruptions of financial markets. At a minimum, managers should have: + Adequate back-up, preferably off site, for all account information + Alternative plans for monitoring, analyzing and trading investments if primary systems are disabled + Plans for communicating with mission-critical vendors and suppliers + Plans for employee communication and coverage of critical business functions in the event of facility or communication disruption + Plans for contacting and communicating with clients during period of extended disruption 5. Performance and valuation – Managers must: 5.1. Present performance information that is fair, accurate, relevant, timely and complete + Managers must not misrepresent by taking credit for performance that is not of their own making + Cannot cherry pick time periods + Any simulated or back-tested performance must be clearly disclosed as such 5.2. Use fair market prices to value client holdings and apply in good faith methods to determine the fair value of any securities for which no readily available, independent or third-party market quotation is available + Managers face conflict of interest in determining end-of-period valuations, since fees depend on them + Responsibility for valuation can be transferred to 3rd party + For pooled funds, independent members of the board should have responsibility of approving asset valuation policies and procedures and reviewing valuations. Where no independent board members are available, these functions should be carried out by independent 3rd parties. + Valuation methods must be applied on consistent basis 6. Disclosures – Managers must: 6.1. Communicate with clients on an ongoing and timely basis + Managers must determine how best to establish lines of communication 6.2. Ensure disclosures are truthful, accurate, complete, and understandable and presented in a format that communicates the information effectively 6.3. Include any material facts when making disclosures or providing information to clients regarding themselves, their personnel, investments or the investment process 6.4. Disclose the following: 6.4.1. Conflicts of interest generated by relationships with brokers or other entities, other client accounts, fee structures or other matters + Soft or bundled commissions + Referral and placement fees + Trailing commissions + Sales incentives + Directed brokerage + Allocation of investment opportunities among similar portfolios + Personal holdings in the same securities as clients 6.4.2. Regulatory or disciplinary action taken against the Manager 6.4.3. The investment process, including: + Lock up periods + Strategies + Risk factors + Use of derivatives and leverage 6.4.4. Management fees and other investment costs, including what costs are included in the fees and the methodologies for determining fees and costs + At a minimum, managers should provide clients with gross AND net-of-fees returns + Must provide itemization of charges when requested by client. Disclosure should include specific management fee, incentive fee, and the amount of commissions paid on client’s behalf + Should disclose to prospective clients the average or expected expenses they are likely to incur 6.4.5. Amount of any soft or bundled commissions and how goods received in return benefit the client 6.4.6. The performance of investments on a regular and timely basis: + Managers should report performance to clients at least quarterly and within 30 days of the quarter end 6.4.7. Valuation methods used 6.4.8. Shareholder voting policies 6.4.9. Trade allocation policies 6.4.10. Results of fund audits and reviews 6.4.11. Significant personnel or organizational changes

Thanks for D_M’s effort for putting it all together. I have a question regarding compliance office, + Existing employees can serve as compliance officers + But individual should be independent from investment and operations personnel Could compliance officer be one one of portfolio manager? I remeber I see this point in the Mock, but I have doubt if he can remain independent.

I think portfolio manager is investment personnel, so I would say no.

I’m an asset manager; I’m ok. I stress all night, and I post all day. I swap my rates, I eat my fees, I go to the lava-tree. On weekends I go study, more C-F-A for me! CHORUS: On weekends he does study, that C-F-A, tee-hee! I read the code, I scratch my head, I like to read strange blogs. When ethics questions coming, disclosing beats the odds. CHORUS: With ethics questions coming… disrobing scares them off! On June Eighth, I’ll skip and jump, in suspenders and a bra! My charter’s for a-holding, just like my dear, ta-da!

^^^^ You sir officially lost it.

ha, if this CFA thing doesn’t plan out, lot of guys on AF has a bright, bright music career ahead of them.

haha… I ripped off American Pie song back in August ‘07 with this: A long, long time ago I can still remember how the markets used to make me smile and I knew if I had my chance that I could make our clients dance and maybe they’d be happy for a while but August made me shiver with every letter I delivered, bad news on the desktop, I couldn’t take one more step, I can’t remember if I cried when I read about the subprime dive but something touched me deep inside, the day, the markets, died. Bye, bye Miss American SubPrime drove my Chevy to the levy but the levy was dry an them good ol’ boys were drinkin whiskey and rye singin this will be the day the markets die, this will be the day the markets died.


I’ve been contemplating taking a stand-up comedy course. Might improve my interviewing skills! You should interview me… at the very least, you’ll be entertained!