Standard 3 Duties to Clients Flashcards
What are the five subjects of this standard?
Loyalty, Prudence and Care
Fair Dealing
Suitability
Performance Presentation
Preservation of Confidentiality
Describe the first subject of this standard.
Members have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests.
The duty of loyalty is owed to the ultimate beneficiaries.
What are recommended procedures to ensure loyalty, prudence and care?
Regular account information.
Client approval.
Firm policies.
According to Standard 3A, clients should receive any news earlier than non-clients.
An investment analyst can only observe, assess, and suit the situation of the client that is disclosed!
When a client makes a trade request that is not in line with the investment policy, the investment manager should first discuss with the client before taking the trade.
In contrast to individual investment managers, mutual funds should handle solely according to the investing mandate.
What are the recommended procedures for ensuring suitability?
Investment policy statement:
- investor objectives
- investor constraints
- performance measurement benchmarks
Regular updates
Suitability test policies
What is the fourth subject of Standard 3?
Performance Presentation - When communicating investment performance information, members must make reasonable efforts to ensure that it is fair, accurate, and complete.
What are recommended procedures to ensure good performance presentation?
Apply to GIPS Standards is the best method.
Compliance without Applying GIPS Standards:
- Considering the knowledge and sophistication of the audience to whom a presentation is addressed.
- Presenting the performance of the weighted composite of similar portfolios rather than using a single representative account.
- Including terminated accounts as part of performance history with a clear indication of when the accounts were terminated.
- Maintaining the data and records used to calculate the performance being presented.
- Including disclosures that fully explain the performance results being reported.
What is the fifth subject of Standard 3?
Preservation of Confidentiality - Members must keep information about current, former, and prospective clients confidential unless the information concerns illegal activities on the part of the client; disclosure is required by law; the client or prospective clients permits disclosure of the information.
Members are encouraged to cooperate with investigations into the conduct of others. Any information turned over to the PCP is kept in the strictest confidence. Members will not be considered in violation of this standard by forwarding confidential information to the PCP.
