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Investment Management Products Regulation

Overview

The role of investment managers and investment management firms is to act on behalf of and in the best interests of clients. Investors entrust their financial assets to investment professionals, who owe a duty to their clients to seek the best strategy possible based on due diligence in understanding the clients’ goals, objectives, risk constraints, and needs.

Ethically sound, professional investment managers and firms strive to achieve the best possible result for their clients, always putting the clients’ interests ahead of their own. Investment management best practices should include full and fair disclosure that enables investors to determine expected risks, benefits, fees, or conflicts.

Investment managers are responsible for: 

  • Consistent and transparent performance reporting
  • Fair dealing in applying best execution and suitability standards to client dealings
  • Compliance with appropriate ethical, regulatory, and professional standards
  • Independent and unconflicted governance of the firm

CFA institute positions and research on investment management are based on our codes, standards, and guidelines.

Disclosures
Clear, prominent, and detailed disclosures about the products and services offered by investment firms, as well as details on the operations of the firm and/or its investment managers, helps investors better understand the risks associated with their investment. Such disclosures enable investors to determine the appropriateness of a given product or service, having regard to their objectives and risk tolerances. Furthermore, product transparency protects investors’ interests by providing investors with the information they need to evaluate the performance of the investment manager.

Performance reports give investors and their advisers the information they need to make well-informed decisions about whether funds' risk/reward relationships are appropriate to their specific needs.

The best performance reports give up-to-date information about fund performance in a consistent, accessible, and understandable manner. Annual and interim financial statements of investment funds should include statements, such as net assets, operations, investment portfolio, summaries of portfolio investments, cash flows or statement of changes in net assets, financial highlights and explanatory notes, and auditor reports on annual financial statements. 

Compliance Procedures
Investment advisers must take responsibility for due diligence on their investment recommendations. Not doing so undermines advisers' credibility and the effectiveness of securities laws and regulations.

Compliance programs help address the relationships between investment professionals and clients by going beyond legal requirements and encouraging behavior that is also ethical. Firms that design internal compliance systems and train and supervise employees to adhere to those systems should help ensure ethical and professional conduct.

The Asset Manager Code of Professional Conduct offers valuable guidance to help investment managers provide services in a professional and fair manner. The Asset Manager Code specifies the general responsibilities of managers in several broad categories, including compliance and support, and proposes requirements to help firms remain compliant.

Compliance Anti-Money Laundering
Investment advisers should establish policies and procedures that help them prevent clients from using the advisers’ services to launder money for illicit activities.

Suitability Standards

Investment advisers must fully consider the suitability and appropriateness of their recommendations and investment decisions with regard to the specific risk tolerances and return objectives of their clients. Investment advisers should undertake reasonable enquiry into the client’s specific circumstances in order to achieve the best possible outcomes for clients. Advisers should consistently apply the same standard of care when determining the suitability of a given investment recommendation irrespective of the scope of advice sought.

 

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