Ethics

Ethics and Standards - Standard III-A: Loyalty, Prudence And Care

Standard III: Duties to Clients

Standard III consists of five subsections:

* III-A: Loyalty, Prudence, and Care

* III-B: Fair Dealing

* III-C: Suitability

* III-D: Performance Presentation

* III-E: Preservation of Confidentiality

Standard III-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.

Reasoning behind Standard III-A

Standard III (A) reminds CFA members and candidates that client interests come first. Because a money manager typically has superior investment knowledge, the client/manager relationship is unequal and presumes a level of client trust. Investment professionals must therefore ensure that a client's portfolio is managed with the same care and good sense that they might apply if their own money were at risk. Identify the Client

It sounds easy enough, but identifying the client who is owed your loyalty is not always so clear-cut. For example, the trustee of an employee pension plan may hire an investment manager to buy common shares of the company's stock to thwart a takeover bid, but that may disadvantage the true clients of the pension fund; that is, its plan participants and beneficiaries. Likewise, in the case of a family trust, the client(s) are probably the beneficiaries of the trust, not the individual who hired the investment manager.

Develop the Client's Portfolio

Money managers must work with the client to establish appropriate goals, expectations, and risk levels. This means developing an investment policy centered on the...