All investment advisors are fiduciaries with a duty of care and loyalty to their clients, and in an ideal world, advisor firms and their staff would comply with these requirements without the need for a prescriptive code of ethics. increase. However, the early 2000s were plagued by various SEC enforcement actions alleging breaches of fiduciary duty (mainly including trading abuse by investment advisors), and regulators mandated all SEC-registered investments. It led to the creation of regulations (which came into force in 2004). Advisors adopt and enforce a written code of ethics that applies to persons they supervise. The SEC Investment Advisor Code of Ethics Rule requires all investment advisors registered with the SEC to establish, maintain and enforce a written code of ethics that includes at least the following five areas of her: 1) List of standards of business conduct. 2) Comply with applicable federal securities laws; 3) require Accessors to report their personal securities transactions and holdings for review; 4) Reporting Violations. 5) Distribute the Corporate Code of Ethics and confirm receipt. While most of the rule’s requirements are relatively straightforward, there are detailed nuances that an IAR advisor must be familiar with in order to enforce his own code of ethics in accordance with his SEC’s rules.
As a starting point, investment advisors should address three key questions when designing and implementing a compliant code of ethics: What information do you need to report? and when this information must be reported. “Access Personnel” means “Supervised Persons” who have access to non-public information regarding the trading of a client’s securities, or non-public information regarding portfolio holdings of a Reportable Fund, or who are involved in recommending securities to clients. or have access to the following information: Such private recommendations. Such individuals must submit a Possession Report (within 10 days of first being considered an Accessor and at least once every 12 months) and a Transaction Report (at the end of each calendar quarter) to be reported. within 30 days from Securities beneficially owned by oneself or one of her close relatives. Notably, these are only the minimum requirements of a company’s code of ethics, and the SEC has suggested that companies consider the possibility of including other areas (e.g., the (e.g., “blackout periods” during which the accessor is not authorized) to conduct unique personal securities transactions).
In addition to collecting the required reports, the company’s chief compliance officer (CCO) also has specific review requirements. For example, a CCO is an access person who puts their own interests ahead of their clients, preempts clients’ investment opportunities for personal gain, or manages their personal investments in a manner that is not reflective of their fiduciaries. should pay attention to. Obligations to Customers.
Ultimately, the point is that an investment advisor’s code of ethics is more than just a pro forma document, it is an important part of ensuring that a firm fulfills its fiduciary responsibilities to its clients. This not only raises ethical expectations of firm leaders and staff, but also gives prospective and current clients more confidence in the level of care they can expect when working in the firm. .