CAIA L2 - 2.2 - Asset Manager Code—Recommendations and Guidance Flashcards
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Professional Code A:
Loyalty to Clients.
2.2 - Asset Manager Code—Recommendations and Guidance
Recommendations (not requirements)
A.1 Align manager compensation to avoid conflict with client best interests, such as avoiding an incentive for excessive risk taking in order to increase manager compensation.
A.2 Create a privacy policy to document how such information is gathered, stored, and used. Include an anti-money laundering policy (if needed) to prevent the firm’s involvement in illegal activities.
A.3 Refuse gifts and entertainment of more than nominal value from service providers. Establish written P&P to define appropriate limits for gifts from both service providers and clients. Require employees to disclose and document such gifts.
2.2 - Asset Manager Code—Recommendations and Guidance
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Professional Code B:
Investment Process and Actions
2.2 - Asset Manager Code—Recommendations and Guidance
Recommendations (not requirements)
B.5.a Ideally, disclose permitted deviations from intent as they occur; at a minimum, disclose these in a normal reporting process.
B.5.b If the strategy or style of the portfolio changes significantly, allow clients to redeem the investment without unfair penalties.
B.6.a Ideally, establish and update a written investment policy statement (IPS) for each client at least annually and as circumstances warrant. The IPS will specify the roles and responsibilities of the manager, and those will vary by situation. A performance benchmark to evaluate portfolio performance should be specified.
B.6.b Ideally, each investment decision will be made in the context of the client’s total situation, but recognize that the client may not wish to share all the information with the manager.
2.2 - Asset Manager Code—Recommendations and Guidance
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Professional Code C:
Trading
2.2 - Asset Manager Code—Recommendations and Guidance
Recommendations (not requirements)
C.1 Managers can use procedures such as firewalls between those with reasons to have such information and the rest of the firm. They should develop procedures to evaluate whether company-specific information is material and nonpublic. Information on pending trades or holdings may be material nonpublic information.
C.2 Develop P&P to monitor and limit personal trading by employees, require prior approval of investments in private placements and IPOs, and provide the compliance officer with employee personal transaction and holdings information. Establish a watch list of companies in which employees may not personally trade without approval.
C.3 Some firms have eliminated soft dollars. If soft dollars are used, disclose it to clients and adopt industry best practices, such as the CFA Institute Soft Dollar Standards.
C.4 If clients direct trading, advise the clients it may compromise the manager’s ability to seek best execution and request written confirmation of such from the client.
C.5 Group suitable accounts and trade them as a block (all participate at the same price) and allocate partial trades pro rata. Specifically address how IPOs and private placements are handled.
2.2 - Asset Manager Code—Recommendations and Guidance
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Professional Code D:
Risk Management, Compliance, and Support
2.2 - Asset Manager Code—Recommendations and Guidance
Recommendations (not requirements)
D.2 The compliance officer should be independent of the investment and operations personnel. The compliance officer reviews all firm and employee transactions. Require all employees to acknowledge they understand and comply with the AMC.
D.4 Retain compliance records and documentation of violations and corrective actions. Retain these for at least seven years or as required by law and regulations.
D.7 Consider outsourcing the creation of the firmwide risk management plan (if needed). It may include stress and scenario testing. Be able to describe the process to clients.
2.2 - Asset Manager Code—Recommendations and Guidance
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Professional Code E:
Performance and Valuation
2.2 - Asset Manager Code—Recommendations and Guidance
Recommendations (not requirements)
E.1 Adopt Global Investment Performance Standards (GIPS), which is a very high standard and gives prospective and existing clients more confidence in the reliability of the performance data presented.
E.2 Independent third parties should be responsible for valuations to avoid conflicts of interest, as manager fees are normally based on account value.
2.2 - Asset Manager Code—Recommendations and Guidance
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Professional Code F:
Disclosures
2.2 - Asset Manager Code—Recommendations and Guidance
Recommendations (not requirements)
F.4.f Minimum quarterly investment performance reporting within 30 days of quarter end.
F.4.l Regular disclosure of client-specific risk information
2.2 - Asset Manager Code—Recommendations and Guidance
