Ethics and Regulation in the Professional Asset Management Industry

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Ethics and Regulation in the Professional Asset Management Industry 11 December, 2011

Whenever a person is hired to perform a service or look after the interest of another, the question of rules for interactions and transactions behavior arises.

This is particularly important for the financial industry were portfolio managers may be entrusted with portfolio value of trillions of dollars , the inherent risks associated with financial investments and the fact that portfolio managers are often exposed to ethical conflicts.

Hence, it is no surprise that the financial industry is highly regulated to ensure that there is a minimum level of acceptable practice. Guidelines are built on two legs – formal legally enforceable regulations and ethical standards. Both follow the overall principle that “portfolio managers will always act in the best interest of their investors”.

Legal regulations are complex often with an interaction between state and federal laws. At the very basic level they establish adequate disclosure of information related to the investment process and provide anti-fraud protections. These cover aspects like documentation, reporting, fairness, timeliness and accuracy of information. At a more complex level, regulations cover specific investments types like for example retirement / pension assets that have different risk management requirements.

Following are the principal Securities Laws for the Asset management industry and their primary target user: * Securities Act of 1933 for security issuers
* Securities Exchange Act of 1934 for security brokers
* Investment Company Act of 1940 for mutual funds
* Investment Adviser Act of 1940 for advisors and private managers * Employee Retirement Income Security Act (ERISA) for retirement asset managers and fiduciaries * Pension Protection Act of 2006 for pension fund sponsors and managers

Several agencies / institutions are responsible to ensure these industry...
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