Newswise — Although it seems timely for the Association for Investment Management and Research (AIMR) to update its Code of Ethics and Standards of Professional Conduct given recent headlines about problems in the financial services industry, in fact the proposed changes are the result of an 18-month process of drafting and review.
But Jonathan Boersma, AIMR vice president of professional standards, says the effort to revise the organization's code and standards, last changed in 1999, started prior to recent media exposure of many industry problems.
The 40 plus-year-old non-profit organization, which awards the Chartered Financial Analyst ® (CFA ®) designation, has 68,000 individual members, including 50,000 holders of the CFA credential. AIMR has members in more than 115 countries around the world and as a result of its far-reaching impact, periodically revises its Code and Standards in anticipation of the ever-changing world of the investment industry.
Boersma points out that this was actually the first time in its history that AIMR has put these Codes and Standards out for public comment. Although they are voluntary to the investment industry at large, all AIMR members and CFA charterholders are required to adhere to them or face sanctions, which can range from a private letter to actual removal of the member's CFA charter.
The revision also comes at a time when AIMR is also expanding global corporate governance from an investor's perspective, developing guidelines that govern the relationship between corporate issuers and analysts and examining investment performance standards when many different countries are involved.
"We need to make sure our Code and Standards reach beyond any one jurisdiction's laws or regulations," Boersma says. The organization also aims to address some newly identified problem areas in its code and standards, based on questions posed by candidates and members.
The current proposal for the Code of Ethics would be to expand them from four general points that provide guidelines on integrity, professionalism, competence and judgment, to six points, which would more explicitly state AIMR's ethical stance and include new provisions to put client interests first and promote the integrity and rules of the global capital market.
Specifically, one of the changes to the Code would prohibit members and candidates from engaging in market manipulation. "Market manipulation is illegal in the United States already," Boersma explains. "We wanted to include something about that to apply globally."
Another hot-button proposal for the revised Code: a prohibition against insider trading. "There are certain cases under U.S. case law where it's legal to trade on insider trading information," he said. "Our position is it doesn't matter how you obtain it. By trading on it, you have an unfair advantage."
AIMR also proposes to expand its rules on ensuring that investments are suitable for clients. Those proposed rules might sound more lenient, based on vaguer wordage that client portfolios be reviewed "regularly" rather than the current "no less frequently than annually." However, Boersma assures that forthcoming interpretive guidance should clarify: If changes need to be made to a portfolio, don't wait a year, he says. "You need to make them now."
Changes to the Standards of Pofessional Conduct focus on reorganization, streamlining the structure of the standards themselves, as well as improving comprehension. Instead of five standards that discuss member and candidate conduct as it relates to clients, prospective clients, employers, the public and the profession, AIMR is recommending an expansion to seven standards. These new standards will be organized by the general topics of: professionalism, duties to clients and prospective clients, duties to employers, investment analysis, recommendations and actions, conflicts of interest, integrity of capital markets and responsibilities as AIMR members or CFA candidates.
Specifically, AIMR proposes to move the issue of misrepresentation higher up in the standards rather than under "Relationships with and Responsibilities to Clients and Prospects." By only including it in that section, Boersma explains, it could have appeared to authorize misrepresentation to people who are not clients or prospects.
Since the public comment period closed on October 31, 2003, AIMR has been reviewing and analyzing all comments received and will revise the original proposal as needed. The new Code is not expected to take effect until January 1, 2005 - following the issuance of interpretive guidance for each proposed revised Code and Standard and another comment public comment period.
Other rules/regulations/codes investment professionals adhere to:
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