Duties to Clients

I consider myself relatively well versed in investment matters. But reading a lot of business magazines and books, participating in online investment forums, investing a bit of money and graduating with an economics degree does not in any way make me an Investment expert. I am still an armature in this investment industry, and that is why I decided to embark on CFA, the highest set of credentials in the global investment management industry. It is probably because of my relatively limited knowledge that I was completely unaware of the existence of the Code of Ethics and the Standards of Professional Conduct that binds investment managers. I was, especially oblivious to my rights as a client, and in light of what I know now, having embarked on CFA, I feel shortchanged in all my previous investment encounters. You probably will to.

My investments endeavors normally involved me looking for money, heading to my brokerage firm, and telling them that I wanted to buy shares. In response, I would be handed a form which I would go and fill in isolation, before returning it. I would then go and deposit the money in the relevant bank account before handing the cheque or bank statement to the broker. I would leave and wait to see how my share choice would perform. When utterly broke or in dire need of finances, I would go through the same process in selling my shares, but after filling the form, I would be told to wait for two weeks for me to get my money, even though the advertised period within which one should receive funds after a sale is T+3, which means, trading day plus three days. This is probably the same relationship you have with your broker, especially if you are a Kenyan investor. This is then for you, and it should help. It is the overview of the CFA Institute Standards of Professional Conduct.

The Standards of Professional conduct covers seven broad topics, namely:

I. Professionalism

II. Integrity of Capital Markets

III. Duties to Clients

IV. Duties to Employers

V. Investment Analysis, Recommendations, and Actions

VI. Conflicts of Interest

VII. Responsibilities as a CFA Institute Member or CFA Candidate

I would however, for now, like to focus on the third Standard, which is what will safeguard your interests and mine too, as a client, granted we keep them at heart every time you hand over your money to investors. These are also what will guide me as an investment manager once I start practicing.

Your rights as clients are safeguarded by the following standard, which your investor must adhere to. I have lifted it verbatim from the CFA Curriculum and which can also be downloaded in its entirety from the CFA Institute website (The link is under Bookmarks, on the sidebar.):

III. DUTIES TO CLIENTS

A. Loyalty, Prudence, and Care.

Members and candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and candidates must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests. In relationships with clients, members and candidates must determine applicable fiduciary duty and must comply with such duty to persons and interests to whom it is owed.

B. Fair Dealing.

Members and candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

C. Suitability.

1. When members and candidates are in an advisory relationship with a client, they must:

a. Make a reasonable inquiry into a client’s or prospective client’s investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.

b. Determine that an investment is suitable to the client’s financial situation and consistent with the client’s written objectives, mandates, and constraints before making an investment recommendation or taking investment action.

c. Judge the suitability of investments in the context of the client’s total portfolio.

2. When members and candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must only make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of the portfolio.

D. Performance Presentation. When communicating investment performance information, members or candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.

E. Preservation of Confidentiality. Members and candidates must keep information about current, former, and prospective clients confidential unless:

1. The information concerns illegal activities on the part of the client or prospective client,

2. Disclosure is required by law, or

3. The client or prospective client permits disclosure of the information.