Setting a higher standard
Establishing an AIMR chapter in New Zealand will help promote high ethical standards amongst the investment community.
Monday, August 21st 2000, 5:52PM
by Louis Boulanger
The Association for Investment Management and Research is a global, nonprofit organisation of more than 41,000 investment professionals from 95 countries worldwide. Through its headquarters in the United States and 94 affiliated Societies and Chapters throughout the world, AIMR provides knowledge to investment professionals while promoting a high level of standards, ethics and professionalism within the investment industry.
AIMR monitors legislative and regulatory activities, particularly as they affect global investment markets and investment practices. On behalf of its membership, AIMR provides public testimony and formal written comments to regulatory authorities and other organisations whose actions have the potential to affect the investment industry and AIMR members.
Ethics
AIMR is Setting a higher standard for investment professionals worldwideTM. Years ago, before a true investment profession existed, capable, honest practitioners had no easy way to distinguish themselves from the fly-by-night charlatans who left unsavoury schemes and scandals in their wake. Finance was stuck at the margins of public acceptability. Several early practitioners recognised the benefits that self-organisation could have in gaining public trust. With the recognition that ethical integrity is strongest when it is voluntarily embraced, not imposed from outside, the early practitioners laid the foundations for turning the investment business into the investment profession. AIMR is firmly committed to this tradition, and for nearly forty years, the CFA® designation has set apart those investment professionals who have mastered the arts of the investment profession and committed themselves to the highest ethical standards.
AIMR’s goals are to support fair treatment for the investing public and to encourage high ethical and professional standards in the investment industry. An ethical and proficient industry is in the best interests of investors who rely on professional advice and management services. It is also in the best interests of investment professionals who seek to compete fairly on the basis of their professional abilities.
An important goal of AIMR is to ensure that the organisation and its members are globally recognised as representing and promoting the highest ethical standards, and the organisation has taken the initiative in developing global standards for its members and for the firms that employ its members. The Code of Ethics and Standards of Professional Conduct are the bedrock of this project. Upon this foundation, AIMR has developed additional distinct sets of professional standards, including the Global Investment Performance Standards.
GIPS
The Global Investment Performance Standards serve as a minimum worldwide standard for the calculation and presentation of investment performance. GIPS are ethical standards for investment performance reporting to ensure fair representation and full disclosure of an investment firm’s performance history. GIPS provide investment managers around the world with a single set of performance reporting guidelines that create a level playing field for calculating and marketing their performance histories in an ethical, standard and consistent method.
The Investment Performance Council (IPC)1 is the body responsible for developing, promulgating, administering, and promoting all of AIMR’s activities regarding its investment performance presentation standards.
The 15-member council held its inaugural meeting on the 9th of March in Paris. The council plans to meet semi-annually in different regions of the world to encourage public attendance and build international awareness of global investment-reporting standards. The IPC will encourage worldwide implementation of the GIPS adopted last year by AIMR.
The council will also implement new procedures and controls to ensure GIPS are consistently applied, interpreted and expanded, with broad public input. It will work with professional bodies, AIMR’s 94 Member Societies and Chapters, regulators and other groups around the world in adopting and implementing GIPS.
While the ultimate success of GIPS will be determined by the competitive pressure on investment firms to adjust their reporting techniques to comply with the new standards, even prior to their release, investment organisations in Australia, Canada, Denmark, Germany, Japan, the Netherlands, Switzerland, Thailand and the USA were adopting global presentation standards consistent with GIPS. Since the release of GIPS last year, a number of additional countries (especially those with no previous standards for investment performance calculation and presentation) are in the process of either adopting GIPS as their standard or drafting standards which will be "in line" with GIPS or, in other words, at least meet all of GIPS’ requirements. Those countries include South Africa and a number of countries in Europe.
AIMR is currently in the process of gathering information on the existing country-specific performance standards. This information includes a contact in each country, whether the current requirements incorporate the GIPS standards or whether they will incorporate GIPS in the future. This list will be updated regularly and made publicly available by the AIMR staff.
Where does New Zealand stand in this global effort? Well, no local firm has yet voluntarily come into compliance with GIPS, nor has the local investment management industry adopted GIPS as the local standard. However, a working group did recommend the adoption of GIPS to the local industry last year. That view was reached after four years of work behind the scenes to ensure that AIMR’s GIPS Committee’s work in developing the GIPS requirements would be relevant to our local environment.
There is a growing awareness of GIPS locally. Some investment firms are finally showing interest in coming into compliance. That is a very positive development. However, AIMR standards and GIPS compliance still seem to eliminate much of the local funds management industry – customers and providers alike. What else needs to happen, in my view, is for the investing public to also show an interest.
In particular, this should include institutional investors, such as trustees of registered superannuation schemes. After all, trustees are responsible for a very significant portion of assets under management in the industry. In many countries, such as the USA and – closer to home - Australia, most investment firms are in compliance with GIPS or similar standards. In fact, trustees in those countries are likely not to even send a request for proposal to fund managers who are not in compliance with the applicable standards.
Trustees here and their investment consultants should be more actively promoting best practice in the industry, in my view, in the best interests of their investing public: members of superannuation schemes. Far too little has been done, so far, in that regard. Part of the reason for this may be the lack of local professional associations for trustees of superannuation schemes and investment consultants. I note, however, that ASFONZ wishes to promote and encourage best practice amongst its members. Also, the Investment Practice Committee of the New Zealand Society of Actuaries is working on a paper that will describe GIPS and determine what role, if any, the Society should play in supporting their introduction and in their maintenance in New Zealand. There may be light at the end of the tunnel!
Globalisation of AIMR
International demand for the CFA study and examination program is responsible for much of AIMR’s international expansion. Just 46% of the more than 65,000 candidates from 128 countries for the year 2000 CFA exam are from the US, compared to 10 years ago, when 87% were from the US. Asia has some of the largest populations of candidates outside North America, with Hong Kong (4,358), Singapore (3,684), Japan (2,016), Korea (1,701) and Malaysia (1,041) in the forefront. In New Zealand, the total number of CFA candidates was only 19 in 1995. Today, there are 93 CFA candidates, 21 AIMR members and 18 CFA Charterholders in our country.
Continuing the tremendous global expansion of the world’s leading association of financial analysts, portfolio managers and other investment professionals, AIMR announced recently that it has added five new Member Chapters, one each in France, Korea, Taiwan, Denmark and the Philippines.
This brings the worldwide number of AIMR Member Societies and Chapters to 94 – 30 of them outside the United States. Until 1990, the Singapore Society of Financial Analysts existed as AIMR’s only Member Society or Chapter outside the US and Canada.
"I am delighted that these AIMR members have taken the initiative to form a local analyst organisation and affiliate with our global organisation", said Thomas A Bowman, CFA, AIMR president and CEO. "Their decision helps raise the bar of professionalism, standard setting and commitment to ethics in their respective countries. On behalf of AIMR’s 89 other societies and chapters, we welcome our new members and look forward to a strong working partnership."
The objectives of affiliated AIMR chapters are typically to:
- increase the local awareness of the CFA Program;
- provide an active program of continuing education so that local members, CFA candidates, regulators and the investing public can increase their knowledge of investment analysis, capital markets and professional standards;
- raise, promote, disseminate and promulgate the highest standards of professional conduct, ethics and integrity through the AIMR Code of Ethics, Standards of Professional Conduct and Global Investment Performance Standards; and
- provide a forum for the exchange of information among investment professionals, corporate management, local regulators, government entities and other interested members of the public.
AIMR Chapters and Societies outside USA and Canada currently exist in the following 19 countries and cities: Bahamas, Bermuda, Cayman Islands, Denmark, France, Hong Kong, Italy, Japan, Korea, London, Malaysia, Manila, Mexico, Netherlands, Singapore, Spain, Switzerland, Sydney and Taipei.
Closest to home, the Sydney Society of Financial Analysts (SSFA) was established in February 1996 to serve its members, CFA candidates and the financial community in the Sydney and surrounding region.
The SSFA’s initial objective has been to support CFA education and raise CFA awareness in the Australian investment industry. More recently, however, the SSFA has become more active in advocacy issues. For example, late last year it submitted, in conjunction with AIMR’s Advocacy Program, comments to the Australian Securities and Investments Commission (ASIC) on their draft guidelines and discussion paper on the Disclosure of Information to Investors and Compliance with Continuous Disclosure and Insider Trading Provisions. That is but one example of how AIMR can contribute positively to the betterment of the industry in any location.
What about New Zealand? Last November a presentation on GIPS and AIMR’s activities in Australasia and elsewhere in the world was given by Michael Caccese, Senior Vice President and General Counsel of AIMR and Lee Price, an AIMR Governor and chair of the GIPS Committee. This presentation followed an earlier presentation by them in 1996 and was again very well received. However, there is still no local chapter of AIMR although efforts are currently being made towards the establishment of such a chapter. Again, behind the scenes, numerous discussions have already taken place between local interested parties and AIMR. Solid progress is being made. My hope is that this will finally come to fruition later this year.
Why should this be of interest to you? Because I have no doubt that this would be of service to the investing public at large, including ours - members of registered superannuation schemes. My reasoning? The Securities Commission has recently undergone its first ever review of practices in the local funds management industry. At a recent conference commission chief executive John Farrell concluded:
"It seems clear that in a number of areas New Zealand practices vary from one manager to another and from what may be expected overseas. These differences may be appropriate, given New Zealand’s circumstances. Moreover the underlying objectives of securities market regulation in New Zealand, and the basis on which the balance is to be struck between regulation and competition in achieving efficient markets, are often substantially similar to the expressed objectives of other jurisdictions. On the basis at least of the IOSCO principles as evidence of best practice in other jurisdictions we have generally the same goals although we may use different words to describe them. The regulatory methods we employ differ in some respects from those used in other countries. However they are designed to achieve similar ends, and may on reflection remain appropriate in New Zealand. That is what we are endeavouring to ascertain in our present review."
Our Paradox
On the one hand, we have a regulator which argues against an international standard on licensing fund managers and, as a result, isolates New Zealand as the only member country of IOSCO to not advocate licensing. On the other hand, we have an industry without a self-regulator. Surely, if our "no licensing" approach for the investment industry is to achieve desirable results, look after the investing public’s best interests and be recognised by investors and regulators overseas as credible, the industry should at least self-regulate. Of course, there are organisations already doing so to some extent. For example, the Investment Saving and Insurance Association (ISI), the New Zealand Society of Investment Analysts (NZSIA) and the Financial Planners and Insurance Advisers Association (FPIA) each have some standards applying to their members. But these efforts fall well short of taking full responsibility to ensure that all investment industry participants follow best practices and have a high ethical standard in all their dealings with each other and the investing public.
There is a clear gap to be filled, in my view, especially if a "no licensing" approach is to deliver the same or better benefits than the licensing approaches adopted by the rest of the world. That gap, I submit, could at least begin to be filled by the establishment of a local chapter of the global AIMR organisation.
It seems clear to me that the Securities Commission is under some pressure from IOSCO to demonstrate that its "no licensing" approach is delivering good results for investors in New Zealand. The degree to which the Securities Commission is able to convince its overseas colleagues that this is the case is critical for the future growth of our industry. We owe it to ourselves and our investing public to act responsibly and ensure that the local investment industry fills this gap and self-regulates. The sooner, the better.
Louis Boulanger is chief executive of William M. Mercer Limited and leader of Mercer Investment Consulting in New Zealand. He has been a member of AIMR since 1995 and a CFA Charterholder since 1997.
Louis Boulanger is chief executive of William M. Mercer Limited and leader of Mercer Investment Consulting in New Zealand. He has been a member of AIMR since 1995 and a CFA Charterholder since 1997.
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