Title LM4 Asset Manager Code of Professional Conduct IFT Notes.pdf ✅

LM4 Asset Manager Code of Professional Conduct 2024 Level III Notes IFT Notes for the Level III Exam www.ift.world Page 1 LM4 Asset Manager Code of Professional Conduct 1. Introduction, Adopting the Code and Claiming Compliance ...........................................................2 2. General Principles of Conduct and Asset Manager Code of Professional Conduct.................2 A. Loyalty to Clients..............................................................................................................................................3 B. Investment Process and Actions ................................................................................................................3 C. Trading .................................................................................................................................................................5 D. Risk Management, Compliance, and Support........................................................................................6 E. Performance and Valuation..........................................................................................................................7 F. Disclosures..........................................................................................................................................................8 Summary ............................................................................................................................................................... 10 This document should be read in conjunction with the corresponding reading in the 2024 Level III CFA® Program curriculum. Some of the graphs, charts, tables, examples, and figures are copyright 2023, CFA Institute. Reproduced and republished with permission from CFA Institute. All rights reserved. Required disclaimer: CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by IFT. CFA Institute, CFA®, and Chartered Financial Analyst® are trademarks owned by CFA Institute. Version 1.0
LM4 Asset Manager Code of Professional Conduct 2024 Level III Notes IFT Notes for the Level III Exam www.ift.world Page 2 1. Introduction, Adopting the Code and Claiming Compliance The Asset Manager Code of Professional Conduct outlines the ethical and professional responsibilities of firms (“Managers”) that manage assets on behalf of clients. Just as the Code and Standards are applicable to individuals, the Asset Manager Code is applicable to firms. The goal of this Code is to set forth a useful framework for all asset managers to provide services in a fair and professional manner and to fully disclose key elements of those services to clients. To be implemented effectively, the principles and standards embodied in the Code must be supported by appropriate compliance procedures. Clients must be able to count on full and fair disclosure from their Managers. Adopting the Code and Claiming Compliance Firms adopting the code have to be in full compliance. Partial compliance or statements of exception are prohibited. Adoption of or compliance with the Code does not require a firm to amend its existing code of ethics or other policies and procedures as long as they are at least consistent with the principles and provisions set forth in the Code. There is specific statement that should be made once a firm is convinced that it meets all the provisions set forth in the code: “[Insert name of Firm] claims compliance with the CFA Institute Asset Manager Code of Professional Conduct. This claim has not been verified by CFA Institute.” 2. General Principles of Conduct and Asset Manager Code of Professional Conduct The six General Principles of Conduct are given below. These represent the responsibilities that Managers have to their clients. 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. Asset Manager Code of Professional Conduct There are six components of the Asset Manager Code: A. Loyalty to Clients B. Investment Process and Actions C. Trading D. Risk Management, Compliance, and Support E. Performance and Evaluation
LM4 Asset Manager Code of Professional Conduct 2024 Level III Notes IFT Notes for the Level III Exam www.ift.world Page 3 F. Disclosures Each component has a set of requirements. These retirements have been taken directly from the Asset Manager Code and are shown in bold. The bullet points reflect practices and procedures designed to prevent violations of the Asset Manager Code. A. Loyalty to Clients Managers must: 1. Place client interests before their own. • Managers should put in place policies and procedures that help ensure that client interests supersede the interests of the firm. • There needs to be a system of checks and balances and monitoring to ensure that no one in the firm is putting their own interests or the firm's interests before the client. • It is important that the compensation structure is set up such that the interests of the client and the firm are aligned. 2. Preserve the confidentiality of information communicated by clients within the scope of the Manager–client relationship. • Managers should create a privacy policy that addresses how confidential client information will be collected/protected. • However, if the client is involved in any illegal activities, then information should be shared with law enforcement authorities. 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 • Asset management companies should have policies and procedures in place that gifts from investment targets or brokerage houses or other entities do not exceed a maximum limit. • They guidelines of what is acceptable and what is not acceptable should be very clearly defined. B. Investment Process and Actions Managers must 1. Use reasonable care and prudent judgment when managing client assets. • Prudent judgement in the context of managing a client's portfolio, means following the investment parameters set forth by the client and balancing risk and return. 2. Not engage in practices designed to distort prices or artificially inflate trading volume with the intent to mislead market participants.
LM4 Asset Manager Code of Professional Conduct 2024 Level III Notes IFT Notes for the Level III Exam www.ift.world Page 4 • This includes falsely spreading rumours about a particular security in order to inflate prices. 3. Deal fairly and objectively with all clients when providing investment information, making investment recommendations, or taking investment action. • Dealing fairly is not the same thing as dealing equally. Managers are allowed to have different clients with different levels of service. • The different level of service should be disclosed and made available to all clients. 4. Have a reasonable and adequate basis for investment decisions. • Before taking any action on behalf of clients, managers must carefully analyse investment opportunities in question. Managers must act only after undertaking due diligence to ensure there is sufficient knowledge about specific investments strategies. • It is acceptable to use third-party research as long as the firm has verified the fact that the third party is doing the necessary due diligence before publishing their reports. • When dealing with complex investments such as derivative-based strategies, the Manager should clearly understand the risks associated with the investments are the strategies before recommending them to their clients. 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. o For example, if the stated objective is to invest in large cap value stocks, then it is necessary for the firm to only make large cap stocks investments, it cannot buy small cap and mid cap stocks. b. Provide adequate disclosures and information so investors can consider whether any proposed changes in the investment style or strategy meet their investment needs. o If the Manager decides to make a material change in the investment strategy or style, then clients should be permitted to redeem their investment if desired without incurring any undue penalties. 6. When managing separate accounts and before providing investment advice or taking investment action on behalf of the client: