IAA Standards of Practice
Since its founding in 1937, the Investment Adviser Association has prescribed certain principles of conduct for investment advisers. Over the years, many of these principles have been used by Congress and the Securities and Exchange Commission as the basis for legislation and regulations governing the conduct of investment advisers and by the United States Supreme Court in defining the standards of fiduciary conduct applicable to all investment advisers.
The investment advisory profession has evolved and changed considerably since 1937. Today, the nature, size, and other characteristics of investment adviser firms, and the services they provide to a wide range of individual and institutional clients, vary significantly. In addition, the legal, regulatory, and compliance requirements that relate to investment advisers have dramatically expanded in scope and complexity. Accordingly, the IAA’s Standards of Practice reflect changes that have occurred while continuing to emphasize an investment adviser’s
core fiduciary duty.
I. Fiduciary Duty and Professional Responsibility
An investment adviser stands in a special relationship of trust and confidence with, and therefore is a fiduciary to, its clients. As a fiduciary, an investment adviser has an affirmative duty of care, loyalty, honesty, and good faith to act in the best interests of its clients. The parameters of an investment adviser’s duty depend on the scope of the advisory relationship and generally include:
(1) the duty at all times to place the interests of clients first;
(2) the duty to have a reasonable basis for its investment advice;
(3) the duty to seek best execution for client securities transactions where the
adviser directs such transactions;
(4) the duty to make investment decisions consistent with any mutually agreed upon
client objectives, strategies, policies, guidelines, and restrictions;
(5) the duty to treat clients fairly;
(6) the duty to make full and fair disclosure to clients of all material facts about the
advisory relationship, particularly regarding conflicts of interest; and
(7) the duty to respect the confidentiality of client information.
II. Professional Qualifications
To enable an investment advisory firm to serve its clientele effectively, its investment and managerial personnel should be individuals of experience, ability, competence, and integrity.
III. Responsible and Ethical Business Practices
An investment adviser should run its business responsibly and ethically, including ensuring that its financial condition, operations, and compliance structure are appropriate to protect its clients’ interests.
IV. Compensation for Services
The compensation of an investment adviser for investment advisory services should be fair, reasonable, and fully disclosed to the client.
V. Communications with Clients and the Public
An investment adviser’s oral and written statements, including those made to clients, prospective clients, their representatives, or the media, must be accurate, balanced, and not misleading.