Pension funds get code of conduct from money manager group

CHARLOTTESVILLE, Va. — Since most pension fund trustees have little knowledge or understanding of how the money management business functions, the CFA Institute has just published a code of conduct for them.

“We hope the code will further (trustees’) understanding of ethics in the investment profession,” said Jonathan Stokes, director of standards of practice at the institute, “and that participants will have better confidence that those that manage and are in charge of their retirement are held to the highest ethical standard.”

The first — and arguably most — important concept of the 10-item code is that trustees act in good faith and in the best interest of scheme participants and beneficiaries.

“That underlies everything else,” Mr. Stokes said.

Among the other principles: Act with prudence and reasonable care; act with skill, competence and diligence; maintain independence and objectivity by, among other actions, avoiding conflicts of interest, refraining from self-dealing and refusing any gift that could reasonably be expected to affect their loyalty; and deal fairly, objectively and impartially with all participants and beneficiaries.

The institute developed the code with the help of a nine-member global working group that included Jonathan Watkin, director of the Hong Kong Retirement Schemes Association; Renzska Beiezeveld of the Dutch Association of Industry-wide Pension Funds; Peter H.Y. Wong a senior partner at Deloitte Touche Tohmatsu in Hong Kong; Ann Yerger, executive director at the Council of Institutional Investors, Washington, D.C.; Vera Kupper Hanspeter Konrad at the Swiss Pension Fund Association, Zurich; Juan Yermo, principal administrator, private pensions unit, directorate for financial and enterprise affairs, Organisation for Economic Cooperation and Development, Paris; Noboru Terada, senior advisor, Morgan Stanley Capital International Inc., Tokyo; and Keith P. Ambachtsheer, president of KPA Advisory Services Ltd., a Toronto-based pension consulting firm,In addition, the institute received several letters from officials at both investment managers and pension funds.“There was no particular issue that drove the code other than the need for trustees to adhere to ethical guidelines that would help give confidence to pension participants,” Mr. Stokes said.

One member of the global working group, Mr. Ambachtsheer (who is also director of the Rotman International Centre for Pension Management at the University of Toronto), said that while the code is fine for guiding principles, the bigger problem lies in the structure of pension funds and as such, the code is not likely to make much of a difference.He has called the current system of lay individuals being named trustees and then looking to outside experts for assistance antiquated.

“What I’m pointing out is that this is not an effective model in pension fund management,” Mr. Ambachtsheer said of the traditional trustee arrangement. “The truly best practice, and what pension funds need, is a corporate structure,” in which financial professionals run the plan and make decisions with board oversight. That way, the organization can develop a strategic plan and mission.

“If they need outside people, that’s fine,” he added. “But this model is based on strong internal capability and that idea has been missing.”

But as the discussion over pension fund structure continues, the CFA Institute will be distributing the code to members and industry associations, pushing for adoption by pension funds.

It’s available here.

Contact Jennifer Byrd at [email protected]