2019 CFA level 3 finquiz curriculum note, study session 3, reading 6

Professionalism in Investment Management INTRODUCTION Professions maintain trust by establishing codes and setting standards that put a framework around ethical behavior and technical competence Professions are defined as an occupational group with: • • • specific education, expert knowledge, and a framework of practice and behavior that underpins trust, respect, and recognition Most professions emphasize: • • • an ethical approach, the importance of good service, and empathy with the client Driving forces of a new profession include governments and regulators which encourage the formation of an ethical relationship between professionals and society at large One difference between professions, on the one hand, and craft guilds and trade bodies, on the other hand, is that the former are required to uphold ethical standards In addition, trade bodies not have a mission to serve society or set and enforce professional conduct rules for practitioners Professions Professions can also widen access to services and support economic activity by encouraging trust in the industries they serve A profession that earns trust will have greater flexibility to manage their own affairs and will allow members of the profession develop service models to benefit the client community Professions are client focused Professionals should: • • • place the integrity of their profession and the interest of clients above their own personal interests, act in the best interests of the client, and exercise a reasonable level of care, skill and diligence Fiduciary duty: the obligation to deliver a high standard of care when acting for the benefit of another party To enforce ethical awareness and improve the quality of client service, most employers encourage members to be members of a relevant profession Professions have high entry standards 2.1 How Professions Establish Trust Characteristics which increase the confidence and credibility in professionals and their organizations: Membership of a profession is a signal that a professional will deliver high-quality service of a promised standard going beyond their academic credentials Professions normalize practitioner behavior Professionals possess a body of expert knowledge Professionalism is underpinned by codes and standards developed by professional bodies Regulators support professional ethics and recognize the framework for ethics provided by professionals Codes and standards can be complementary to regulations Knowledge, developed by experts of a profession, is made available to all members of a profession which helps them work effectively and ethically and is based on best practice Governments support professions due to the role played by professionals in helping the public Professions provide a service to society Professionals should go beyond codes and standards by advocating for higher educational and educational standards in the industry, individually and through their companies Professions encourage and facilitate continuing education Most professional bodies require that a specific amount of new learning is undertaken each year to keep up to date with changes in technology, standards of ethical behavior, in services that can be offered, and the legal and business environment in which services are being rendered –––––––––––––––––––––––––––––––––––––– Copyright © FinQuiz.com.All rights reserved –––––––––––––––––––––––––––––––––––––– FinQuiz Notes Reading Reading FinQuiz.com Professionalism in Investment Management Continuous professional development: is the process by which professionals undertake new learnings This process may be segregated into different types competencies and types of learning activity Any training and education undertaken by professionals will increase the value of human capital which contributes to economic growth and social mobility Professions encourage the engagement of members Professionals should mentor and inspire those who have or are willing to enter into a profession Professionals should be willing to volunteer to advance the profession engaging with peers to develop expertise and ethics Professionals should also volunteer to educate new generations in ethical knowledge and ethical decision making Professions monitor professional conduct Members of a profession must be held accountable for their conduct to maintain the integrity and reputation of the industry This is achieved by monitoring and imposition of sanctions on members 2.2 Professions Are Evolving Professions are evolving due to: • Professions are collegial Professionals should respect the rights, dignity, and autonomy of others • greater transparency and public accountability is forcing professions to change and technology opening up possibilities for new ways of working Professions are recognized overseeing bodies Many professions are not-for-profit organizations with a mission which emphasizes excellence, integrity, and public service An overseeing body typically ensures that professionals strive to remain competent Currently, the investment management profession meets most, but not all, of the expectations of a professional: Globally, there is a trend to require examined entry to practice investment management and maintain competence but few professions practice all expected attributes The investment management profession has become increasingly globalized due to the opening up of capital markets Regulatory coordination across borders and emergence of technology are contributing to this globalization 3.1 Effective professions continue to develop their role to account for changing best practices Professionalism In Investment Management Public understanding of the investment profession’s codes and practices is still developing Recognition by employers and regulators lags established professions • Key processes of a profession’s responsibilities need to be reviewed by a professional agency or independent public body Trust in Investment Management Investment professionals are trusted to maintain a standard of knowledge and apply that knowledge with care and judgement Investment professionals are also expected to have: • • • superior financial expertise; technical knowledge; and knowledge of applicable laws and regulations Professionals should also seek to disclose risks, conflicts, and any fees involved to clients in a way to serve their best interests Compliance with of ethics and standards of professional conduct is essential for investment professionals and practice should be guided with care, transparency, and integrity To maintain trust, investment management firms and the investment profession must be interdependent Regulations and standards set by professional bodies may differ from and conflict with those of employers and regulators The investment management profession can deliver more value to society when higher levels of trust combined with better capital allocation lower transaction costs and help meet client objectives Reading Professionalism in Investment Management CFA Institute as an Investment Management Professional Body 3.2 In addition to US public company standards, the CFA Institute Board of Governors has resolved to implement US not-for-profit leading practices Mission of CFA Institute: “to lead the investment profession globally, by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.” CFA Institute candidates and members must meet the highest standards established by CFA Institute, regulators or employers When client and market interests conflicts, the Institute requires the duty to market integrity should be the overriding obligation The CFA Institute collects knowledge from practicing investment professionals, conducts rigorous examinations, and ensures practitioner involvement in developing codes and ethics FinQuiz.com The CFA Institute ensures that candidates have mastered the core knowledge, skills, and abilities that are necessary and applied by investment professionals The Institute also participates in new research and its dissemination as well as generation of financial ideas Through local societies, CFA Institute encourages members to interact in local professional communities and engages them in its initiatives Membership in a local society is important for continuing professional development CFA Institute additionally requires members and candidates to: • • • adhere to Code and Standards; annually sign a statement attesting to that continued adherence; and maintain and improve their own professional competence as well as those of others Practice analysis: is the process of continuous interaction with investment management professionals to ensure that their body of knowledge remains current and globally relevant Expectations of Investment Management Professionals The characteristics and behavior expected of all professionals include: • • • • • • • honesty, integrity, altruism, continuous improvement, excellence, loyalty, and respect for colleagues, employers, and clients Extremely high standards, including behavior in public, but not perfection, is expected of individuals Professionals are additionally expected to: • • • • • • uphold the reputation of their profession be responsible, reliable and accountable in their work engage in continuing professional development to update their knowledge provide independent advice avoid or disclose conflicts of interest respect client information, objectivity and transparency Some attributes which are shared by most professions include the duty to be honest, open in dealings and obtain informed consent from clients Professionals should not abuse their specialized level of knowledge the possess compared to their clients Professionals should disassociate themselves from violations of laws or regulations Individuals are encouraged to act up themselves in response to a concern even if they are unable to alter the conduct of others When encountering ethical dilemmas, investment management professionals should carefully consider the facts of each issue and assess the implications for clients, their employers, and their own career Investment professionals should be able to understand and apply judgment relating to the code and standards of their professional bodies to their loyalty to their employer The CFA Program ethics and professional standards guide investment professionals in the case of conflicting interests Professionals may raise a concern with the following: • • • • colleagues or contemporaries supervisors a firm’s compliance or ethics officer a mentor outside the firm Reading • • • • Professionalism in Investment Management a professional body hotline senior individuals in the firm a firm’s whistleblowing line a regular or law enforcement agency • • • • • consumerism (most influential social force today), regulation, globalization, demographics, and technological innovation Regulation has helped raise professional standards by making them a requirement for practice Globalization has allowed for common investment practices resulting in harmonization of investment practices and regulation Challenges of globalization: • • Large firms consolidate in developing their own standards and codes which conflict with those of individual professional bodies Standards of market integrity and client interest may vary in the countries and regions in which a firm operates Rapid advancements in technology is the biggest challenge faced by the investment management profession Examples of the effects of technology on the investment management profession: • • • • Professionals should seek to raise an ethical dilemma issue internally as a starting point In seeking the advice of others, professionals should seek confidentiality Protecting the client may take priority over an individual raising concern Challenges for Investment Management Professionals Investment management faces challenges from: Rapid advances in computer power alter the definition professional expertise and how it is applied to serve investors Digital systems may replace or enhance investment professional’s functions Important functions of the investment profession such as index replication and risk management are being automated Artificial intelligence (AI) developments Technological developments demand that the investment profession evolves through continued education programs In addition, new codes of practice and standards should be developed which recognize the growing intersection between human and artificial skill FinQuiz.com ... society when higher levels of trust combined with better capital allocation lower transaction costs and help meet client objectives Reading Professionalism in Investment Management CFA Institute as... Professional Body 3. 2 In addition to US public company standards, the CFA Institute Board of Governors has resolved to implement US not-for-profit leading practices Mission of CFA Institute: “to.. .Reading FinQuiz. com Professionalism in Investment Management Continuous professional development: is