CFA Institute Finalizes Model Code of Professional Conduct
The CFA Centre for Financial Market Integrity, an offshoot of the group formerly known as AIMR, has issued the final version of its Asset Manager Code of Professional Conduct.
The CFA’s code is broader than a traditional code of ethics, covering substantive topics such as best ex, soft dollars, trade allocations, business continuity, fair value pricing, and proxy voting. The code applies at the firm, rather than individual, level. Adoption of the code is voluntary, even for firms that claim compliance with GIPS or AIMR-PPS standards.
The actual "code" is fairly short, running just three pages long. It is divided up among the following categories:
loyalty to clients;
investment process and actions;
compliance and support;
performance and valuation; and
A more detailed appendix fleshes out recommendations and guidance for each of the items.
According to the CFA Institute, the code was developed primarily for advisory firms that are not currently subject to a regulatory requirement to adopt a code of ethics. "Managers in less-regulated jurisdictions or who are otherwise exempt from formal regulatory registration, including hedge funds, will benefit the greatest from the adoption of the Code," explained the group.
However, they added, even firms that are required to have a code of ethics might want to consider adopting the CFA’s code. "The fact that that certain provisions may duplicate legal or regulatory requirements should in no way inhibit adoption of the Code," said the group. "In fact, it should make adoption and compliance with the Code straightforward." The code, said the CFA Institute, was designed so as not to conflict with existing law.
When the code was proposed last November, it required advisers to tie the use of soft dollar commissions directly to each client whose brokerage generated the commissions. The Investment Adviser Association (formerly the ICAA) had asked the CFA Institute to back off on that point, calling it a "highly controversial position." The final version of the code does not tie soft dollar benefits to specific clients. Instead, it states that advisers must use soft dollars to pay for investment-related products or services that directly assist the adviser in the investment-decision making process, not in the management of the firm.
Like the IAA’s Best Practices for Investment Adviser Codes of Ethics, the code can be used by advisers to evaluate their existing code and identify gaps in coverage. However, advisers should note that the CFA code is broader in scope than traditional U.S. advisory firm codes of ethics.