Corporate Governance is Crucial for Investment Managers
Your investment manager has some overarching legal and ethical duties: to deal fairly, honestly and in good faith with you as their client, to use reasonable care to avoid misrepresentations and to always act in your best interests. But how can you be sure your investment manager is fulfilling these duties?
Your investment manager can best fulfil these duties and demonstrate them to you by putting in place a governance structure that is effective, flexible and visible to you.
An effective governance structure for investment managers, and ways in which you can stay informed and reassured about it, should include the following.
Policies and Procedures
Your investment manager should have in place detailed policies and procedures around their various overall duties to you and on specific rules to which it must adhere. Your investment manager should keep these up to date and provide adequate training to staff.
When choosing an investment manager, and on an ongoing basis, you should ask about their policies and procedures and how regularly they are updated.
Information Provided to Clients
Some of the specific rules include requirements for your investment manager to provide various documents and information to you, including:
- Conflicts of Interest Disclosure, which details material conflicts of interest between the investment manager’s interests and yours, and how those material conflicts have been dealt with in your best interests;
- Relationship Disclosure Information, which includes various matters that the securities regulators have decided are important for you to know about such as investment allocation procedures, complaints processes, descriptions of your investment management fee calculation and details of other fees such as custodial fees, information about your custodian, etc.
- Privacy Policy, which details how your personal information is collected and used.
- Proxy Voting Policy, which describes how your investment manager votes on your behalf at meetings of the companies in which you are invested.
You should make sure you receive the required information and read what is provided to you by your investment manager.
Board of Directors and Compliance Function
A Board of Directors can include employees of the investment management firm but should also include qualified external members. This is to ensure independence and accountability to prevent potential issues such as conflicts of interest. The Board also monitors that all regulations and guidelines applicable to the investment manager are being followed, usually by way of reports from the manager’s compliance function.
The compliance function must include a Chief Compliance Officer who is responsible for all compliance matters for your investment manager. The CCO may have compliance staff who ensure that all applicable laws and regulations are complied with.
You should ask your investment manager to describe the composition of its Board of Directors, its compliance function and how they work.
Transparency of Fees and Expenses
A key element of effective governance is transparency. Your investment manager must make clear and full disclosures to you of all fees and other expenses that may potentially be charged to you or affect your portfolio: they must be described in the Investment Management Agreement signed by you and your investment manager.
As well, your investment manager is required to provide a statement at least annually showing all fees and expenses which have been charged to you, either directly or indirectly. You should be able to ask questions about any fees or expenses which surprise you and should receive satisfactory answers.
Transparency of Performance Returns
Your investment manager is required to provide at least annually a statement showing how your portfolio has performed over specified periods of time, calculated in a specific way. This statement must also contain details of the opening and closing market value of your portfolio, and changes due to deposits by you, withdrawals you may have made, purchases and sales of securities, and changes in market value of securities.
You should have the opportunity to ask your investment manager about your portfolio’s performance.
Overall – The Client Comes First!
Your investment manager has a legal and ethical responsibility to act in your best interests. A corporate governance structure is crucial to fulfilling this responsibility.
Investing with Bloom Investment Counsel, Inc.
At Bloom Investment Counsel, Inc. we work with you to understand your long-term financial needs, objectives and goals, as well as preferences and constraints on your invested capital. As a part of our customized portfolio building process, we will define an Investment Policy Statement for you that captures all of the considerations that must be met and accounted for.
Bloom maintains a stringent corporate governance and compliance regime to demonstrate our integrity and ensure fairness for our clients.
Discover our personalized portfolio management services today by visiting our website.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.