Investment Advisers Should Adhere to a Single, High Fiduciary Standard, Says CFA Institute

11 September 2009 - Charlottesville, Va. - In response to the current debate on changes to the investment industry’s fiduciary duty standards, Kurt Schacht, CFA, managing director of the CFA Institute Centre for Financial Market Integrity, said, “We welcome this discussion as it is appropriate and necessary in this fragile economic environment. Our members support the creation of a single and higher fiduciary standard of care. However, we see red flags when attempts are made to water down or define the standard so that it applies to only those brokers who provide investment recommendations. If the goals are to provide clarity, consistency, and meaningful investor protection, then only one thing will accomplish that: a single, rigorous standard that requires prudence, care, and loyalty to clients.”

CFA Institute has a long history – more than four decades – of requiring all members and candidates in the CFA Program to adhere to its rigorous and practical Code of Ethics and Standards of Professional Conduct. The Code and Standards, which are the ethical benchmark for investment professionals globally, regardless of job title, cultural differences, or local laws, were developed in the early 1960s and have been periodically updated to reflect the constantly changing investment industry. More than 300,000 CFA Institute members and candidates worldwide are required to adhere to the Code and Standards.

“The fundamental tenet of the Code and Standards is that investors’ interests come first,” said John Rogers, CFA Institute president and CEO. “We believe that many of the problems that stemmed from the global market crisis could have been avoided if investment professionals adhered to this tenet and a higher fiduciary standard.”

Currently, brokers/dealers in the United States generally adhere to a lower suitability-standard of care, as long as they do not receive compensation for investment advice and only incidentally give advice as part of their brokerage services. Registered investment advisers, on the other hand, fall within a higher fiduciary duty, one that requires them to put their clients’ interests first. The Obama administration has proposed that a “single standard” fiduciary duty apply to all financial advisers, including broker/dealers, investment advisers, and other financial planners.

Schacht added that “We welcome the opportunity to share our experience with a global, higher ethical standard with Congress, the Obama administration, and other policymakers. Not only has our Code existed for more than 40 years but the CFA Program, which began in 1963, has always examined investment professionals’ knowledge of how to apply the Code and Standards.”

About the CFA Institute Centre for Financial Market Integrity

The CFA Institute Centre develops timely, practical solutions to global capital market issues, while advancing investors’ interests by promoting the highest standards of ethics and professionalism within the investment community worldwide. It builds upon the CFA Institute’s 40-year history of standards and advocacy work, especially its Code of Ethics and Standards of Professional Conduct for the investment profession, which were first established in the 1960s.