CFA Institute Code of Ethics

CISI Code of Conduct

When you fall sick, you may know that you need to go to a doctor and depending upon the nature of illness what kind of specialist would be able to help you as well. You would not rely on a lab technician or even a registered nurse, but, with a doctor, the right person to address your health problem. This is because there is clear cut delineation in the hierarchy of the different people working in the healthcare industry with the physician on the top of the list.

The financial services industry is no different. Well the list is exhaustive – Financial Consultant, Financial Advisor, Investment Specialist, Stock broker, Investment Representative, Investment Manager etc. etc.

It is indeed confusing for the common investor when they hear too many different jargons and names thrown on them and quite often they think they are all synonyms.

The financial services industry has so many designations and even some so-called professional designations can be obtained with no effort. The unfortunate state of the industry is such that a person with some simple series examinations is able to advise and is engaged by a larger investment house to sell their products. Sadly for the novice and common investor, the educational requirements for the financial advisors are very minimum. One could just finish or even drop out of high school, open up a sleek office, pass a FINRA general securities exam and start peddling you stocks or some financial products, all in a couple of weeks time. Possessing Series 6, 7, 63 and other series exams though satisfy the regulatory requirements in order to become a financial advisor, do not invariably guarantee any experience requirements in dealing with clients’ assets or managing money. They are essentially glorified salesmen selling you the products of a larger investment house and burdening you with a lot of hidden fees and costs. These charges and costs are not transparent apart from the visible so-called management fee, which is a fee charged periodically on the assets under management (AUM).

However rest assured there are two leading professional designations that require strict educational requirements and high ethical standards. They are the Chartered Financial Analyst (CFA) and the Certified Financial Planner (CFP). There is a difference between these two qualifications as well.

Let’s see what they are.

First of all, the CFP title is conferred to a person after he passes an examination conducted by the International Board of Standards and Practices For Certified Financial Planners. The route to obtaining a CFA title is bit more onerous. One would have to take three examinations over a period of three years at least, which covers master level subjects like quantitative analysis economics, accounting, portfolio management for individuals and institutions, ethics, security analysis etc. The Chartered Financial Analyst Institute confers the CFA diploma only when all the three exams are successfully completed and the diploma holder also has 48 months relevant and acceptable industry experience.

Secondly, while the CFP is a generalist, the CFA is a specialist.

Thirdly while the CFPs deal more with comprehensive financial planning, Chartered Financial Analysts deal more meticulously with investment portfolios, research oriented portfolio management and security analysis.

In fact, the February 2005 edition of the Economist proclaimed CFA Designation as the gold standard for serious investment professionals.

If you are particular about how and who exactly manages your assets it is highly essential that you look for a registered investment advisor with the highest level of qualifications to manage your money. This is where you will find that an experienced CFA charter holder fits the bill and manage your money. Now this for the credentials and qualifications in finding the best investment professional for you.

Well there still more following important factors to consider as well.

First high ethical standards. You need to do a background check on the registered investment advisor to see if he or she has any disciplinary history. The Securities and Exchange Commission, the Financial Industry Regulatory Authority and the North American Securities Administrators Association impose all disciplinary actions related to securities transactions and investment advice. These authorities also maintain files on all securities licensed professionals and registered investment advisers in the U.S. An online inquiry will quickly disclose whether the investment professional you are considering is free of any regulatory violations that required disciplinary action.

Experience is another vital aspect in your choice of the best investment professional. The more the experience in varied aspects of the investment management the better. The current and the growing environment in the global economy requires a strong command not just in the US market but also in the global markets as well. It would be worthy if you can find an investment manager well proficient and has had experience in the global financial markets to invest your assets.

If you don’t choose the right investment manager to manage your assets you may lose money in several ways and also more often without your knowledge.

An unscrupulous advisor or broker may churn your portfolio. Brokers who have discretionary authority over your assets may use this unethical practice to increase their commissions by trading unnecessarily.

A dishonest advisor may try to sell dividends to you. Let us explain what this means. They convince you in buying a stock just before it pays out a dividend saying you will make the extra money or return immediately. This is never the case. When a stock goes ex-dividend its price normally decreases by the amount of the dividend that is to be paid. So essentially you as an investor don’t make any money here but the stock broker or adviser made his commission. Similar practice also exists with mutual funds.

For your education on the issues over hidden fees and costs in greater detail, please click here (link to the hidden fees and costs episode of Invest wisely). If you chose the wrong financial advisor who is actually tied to another investment house or bank you would be paying hidden fees and costs which come in different forms and names.

Weighing all this we would strongly recommend you take that extra time and effort in doing all the background check on the investment manager before you entrust your assets with him or her. We discussed with you in the first portion of today’s episode on risk management. Beware, we wish to reinforce here that you will subject your assets to unwarranted and irreversible risks if you chose the wrong person to manage your hard-earned assets.

GoodWin Asset Management is headed by Leelaa Rao, who is not only a CFA Charter-holder but also a Fellow of the Chartered Institute for Securities and Investments and a Chartered Wealth Manager of the elite professional body in the UK. Founded by such a highly qualified professional from both sides of the Atlantic, GoodWin upholds highest ethical standards in the global investment industry.