Standard III (A) - Loyalty, Prudence, and Care

Members 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’ interest before their employer’s or their own interest.

Guidance

• All the investment actions taken should be in client’s best interests
• The members should follow applicable fiduciary duty
• The clients’ asset pools must be managed according to terms of governing documents
• Investment decisions should be made in context of total portfolio
• Any possible conflicts must be disclosed
• The members must seek best trading execution for clients

Examples of Violation:

• Example 1: A money manager indulges in excessive trading using his client’s money because he gets commission on the trading volume. Even if all the trades are suitable for the client, it’s a violation of the law.
• Example 2: An investment advisor, in order to get more clients/business from a broker, starts directing more and more of his client’s trades through this broker, without clients’ knowledge and/or considering best execution practices.
• Example 3: An investment manager, who workers for an investment trust, conducts all the transactions through a particular broker, because that broker provides him personal benefits, such as lower transaction costs on his personal trades.

Example 4: The investment manager directs all trades to a broker in return for certain products and services (pay soft dollars).