Standard III(A) Loyalty, Prudence, and Care

what is Standard III(A) Loyalty, Prudence, and Care

Members and Candidates 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’ interests before their employer’s or their own interests.

what must you do under Loyalty

• Act solely for the benefit of clients.

• Avoid or properly disclose conflicts of interest.

• Follow client mandates, governing documents, and applicable laws.

• Prioritize client interests over firm or personal gain.

what must you do under prudence and care?

• Balance risk and return according to client objectives.

• Make decisions with caution, diligence, and professional judgment.

• Consider portfolio-level impacts rather than evaluating investments in isolation.

• Account for diversification, liquidity, cash flow, taxes, and risk tolerance.

Identifying the Client

who is the client for, individual acounts, pension plans, pooled funds, other professional roles

Individual Accounts

• The client is the individual investor.

Pension Plans and Trusts

• The ultimate beneficiaries are the clients, not the entity hiring the manager.

Pooled Funds/Index Funds

• Duty is to manage assets according to the fund mandate and stated objectives.

Other Professional Roles

• Determine who is affected by your work (e.g., shareholders, investors, investing public).

• Maintain loyalty and care toward those stakeholders.

what must you do when developing a portfolio for a client

• Ensure investment objectives and expectations are realistic and suitable.

• Align recommendations with client circumstances, risk tolerance, and long-term goals.

• Follow all client-imposed investment restrictions and guidelines.

• Clearly disclose unavoidable conflicts of interest.

• Total Portfolio Approach

what is and what are rules around soft commisions

Using client brokerage commissions to purchase research or services.

• Client brokerage should only be used for research or services that benefit the client.

• Paying higher commissions without client benefit violates the duty of loyalty.

• Using commision for firm or personal benefit also violates

what is and what are rules around soft commisions directed brokerage

Client instructs manager to use a specific broker.

• Permissible when client brokerage is used for the client's benefit.

• Still requires seeking best price and best execution.

• Disclose potential impacts on execution quality.

what are the rules around proxy voting

• Vote proxies in an informed and responsible manner.

• Consider the economic impact on clients.

• Do not vote blindly or automatically follow management recommendations.

• Maintain and disclose proxy voting policies.

• A cost-benefit analysis may justify not voting certain proxies.

recommendations for membrs

1. Follow applicable rules and laws.

2. Establish investment objectives of client.

3. Consider suitability of a portfolio relative to the client's needs and circumstances, the investment's basic characteristics, or the basic characteristics of the total portfolio.

4. Diversify.

5. Deal fairly with all clients in regard to investment actions.

6. Disclose conflicts.

7. Disclose compensation arrangements.

8. Vote proxies in the best interest of clients and ultimate beneficiaries.

9. Maintain confidentiality.

10. Seek best execution.