Industry News

Large and small firms are following the code’s six principles

By Fiona Collie |

Asset management firms serious about following a code of ethics and gaining client loyalty and trust need to do more than talk about it, CFA members heard Wednesday at a CFA Society of Toronto event.

Parodying a Mark Twain quote, Bob Dannhauser, head of the standards of practice and outreach for the CFA Institute in New York, said: "Everyone always complains about ethics and the lack of ethics in any number of spheres of society, including financial services, but nobody ever really does anything about it."

One of the things asset management firms can do to raise their ethical standards, according to Dannhauser, is to adopt the CFA Institute's "Asset Manager Code of Professional Conduct."

The code was first introduced by the CFA Institute in 2005 and focuses on six principles: loyalty to clients, investment process and actions, trading, risk management, compliance and support, performance and valuation and disclosures.

Under each of these principles the code offers a more detailed explanation. For example, under the heading of "loyalty to clients" the code outlines that managers must "place client interests before their own" and "preserve the confidentiality of information communicated by clients within the scope of the manager-client relationship."

"It's all good stuff and sort of easy to say," said Dannhauser, "the more challenging part, frankly, is in trying to relate these ethical principles to how you actually do business.

To make it easier for firms to adopt the code, it is presented as principles and guidelines rather than strict rules. Offering guidance rather than rules, said Dannhauser, makes it easier for the professional standards to be adopted by any type of business model.

Currently, about 820 firms have adopted the code worldwide, said Dannhauser. In Canada specifically, about 47 asset manager firms, both large and small, are following the CFA's principles.

Adopting this code of conduct, said Dannhauser, is a proactive way for firms to demonstrate its commitment to professional standards, which helps to strengthen client loyalty and in turn the firm's bottom line.

Another reason to adopt the CFA code, according to Mike Thorfinnson, CAO and chief risk officer, TD Asset Management, who also spoke at the event, is simplicity.

Typically when a client asks an asset management firm, particularly a large one, about its code of ethics, said Thorfinnson, managers have to cite numerous policies, which can make things difficult for clients. "Clients can get a bit confused," he said, "and this code offers an opportunity to simplify what you actually present to clients." 

TD Asset Management adopted the CFA's "Asset Manager Code of Professional Conduct" in April 2012.