3xModule 1-6 Ethics

Standard 3.A.8.

#****For periods beginning on or after January 1, 2010, carve-outs must [NOT] be included in a composite unless the carve-out is actually managed [separately] with its [own cash balance]. Carve out accounting is optional and used if an investment management firm wishes to report the results of portions of an account that follows a multiple-strategy objective.

(1) beginning market value-weighted method

(BV1*R1 + BV2*R2) / (BV1+BV2)

*time-weighted rate of return (TWRR) for KFM using the Original Dietz Method. This method is permissible for periods up to January 1, 2005.

(EMV-BMV-CF) / (BMV + 0.5CF) EMV = ending market value BMV = beginning market value CF = Cash flow

Standard 1.A.6.

Accrual accounting must be used for fixed-income securities and all other assets that accrue interest income. Market values of fixed-income securities must include accrued income.

discretion or discretionary

"the ability of the firm to implement its intended strategy." **A portfolio becomes nondiscretionary when the manager is no longer able to implement the intended investment strategy. If for instance the liquidity requirements are so great that much of the value must be in cash, or if the portfolio has minimal tracking limits from an index portfolio, then the description of "discretionary" is really no longer appropriate. *-if following an index NOT discretionary *-if required to hold cash at 15% NOT discretionary *-if all transactions must be approved by the client not discretionary

Chapter 4 (4.1)

Chapter 4

Standard 3.A.2.

Composites must include only assets under management within the defined firm.

GIPS Input Data Requirements

GIPS Input Data Requirements

Module 5.1: The Asset Manager Code

Module 5.1: The Asset Manager Code

Standard 3.B.2.

To remove the effect of significant cash flows, firms should use temporary new accounts.

2) beginning market value plus cash flow method

W port A = 30-10/30 = on the 10th of the month 20 days left

*Time-weighted rate of return

example TWRR = (1 + 0.004)(1 − 0.002)(1 + 0.049) − 1 = 0.051 = 5.1% Example: Time-weighted rate of return The Rooney account was $2,500,000 at the start of the month and $2,700,000 at the end. During the month, there was a cash inflow of $45,000 on day 7 and $25,000 on day 19. The values of the Rooney account are $2,555,000 and $2,575,000 (inclusive of the cash flows for the day) on day 7 and day 19, respectively. Calculate the time-weighted rate of return (assuming 30 days in the month). .004 = [(2,555,000-2,500,000)]-45,000/2,500,000

Soft Dollars

soft dollars are the benefits provided to an asset manager by a broker-dealer as a result of commissions generated from financial transaction executed by the broker-dealer for client accounts or funds managed by the asset manager. -Using client soft dollars to benefit the firm (is a direct violation. **-If the soft dollars benefit the clients whose accounts generate the soft dollars and the use of soft dollars is disclosed, they are acceptable. (not allowed to be spent on firms operating expense) -the primary use of which directly assists the investment manager in the investment decision making process and not in the management of the firm.

INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS

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RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE

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**(b) The modified Dietz method gives a weighting to each cash flow but assumes that returns are even during the month. This method may be used for any period up to January 1, 2010.

**(EMV-BMV-CF) / BMV + Wi*CFi EMV=ending market value BMV=beggining market value For Modified Dietz need monthly valuations and on the date of all large external cash flows.

Standard 1.A.5.

***For periods beginning January 1, 2005, firms must use trade-date accounting

GIPS Real Estate Requirements

**-valued at fair value (not book value for both equity and fixed income) *-Disclosure of an appropriate fee schedule. *-before 2012 must have an external valuation every 3 years. Following 2012 must have every year *-Composite returns, including component returns, must be calculated at least quarterly by asset-weighting the individual portfolio returns using time-weighted rates of return. **-In addition to the [total return], the [capital return] and [income return] components must be disclosed, must sum to the total return, and must be clearly identified as gross or net of fees. *-Composites must be defined by grouping accounts with similar objective, strategy, et cetera, and vintage year Recommend mentions if GAP or IFRS *Vintage Year - Year in which capital is first called from or drawn down from investors. Not when created.

Standard 3.A.1.

**All actual, fee-paying, discretionary portfolios must be included in [at least one] composite. Although non-fee-paying discretionary portfolios may be included in a composite (with appropriate disclosures), nondiscretionary portfolios must not be included in a firm's composites. **The percentage of the composite assets represented by non-fee-paying portfolios must be disclosed as of the end of each annual period

Standard 3.A.3.

**Firms are not permitted to combine simulated or model portfolios with actual performance. *-Cannot even if say simulated *-When performance includes simulated results, because of the introduction of new products, this fact should be clearly disclosed in the performance presentation. *Performance Presentation allows the use of simulated performance analysis as long as it is clearly stated that the results are simulated *Model and hypothetical results must be excluded, but can be given as supplemental information.

#*Explain the requirements and recommended valuation hierarchy of the GIPS Valuation Principles.

**For periods beginning on or after January 1, 2011, the GIPS require firms to use fair values. If that is not available use the hierachy **1-Market value" (e.g., for an [actively traded] stock or bond use the last trade price.) **2-Quoted prices for [less actively traded] identical or very similar investments (e.g., last available price) **3-Using market-based inputs to estimate price (e.g., using P/E) **4-Price estimates based on inputs that are [not directly observable] (e.g., a discounted free cash flow price estimate based on projected cash flows and assumed discount rate). -firms must disclose valuation hierarchy -Firms must disclose if their valuation hierarchy differs from the GIPS recommended hierarchy.

Preservation of Confidentiality

**Members and Candidates must keep information about [current], [former], and [prospective clients] confidential unless: -*The information concerns illegal activities on the part of the client or prospective client, *-Disclosure is required by law, or *-The client or prospective client permits disclosure of the information. *-Can ALWAYS disclose to the CFA society

B. Independence and Objectivity

**Members and Candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity. *Allocating shares in oversubscribed IPOs to personal accounts is a violation *Client gifts must be disclosed to the member's employer prior to acceptance, if possible, but after acceptance, if not. *may accept gifts or bonuses from clients. (Can accept lavish vacations) *May accept compensation from an issuer of securities in return for producing research on those securities. As long as the analysis is thorough, independent, unbiased, and has a reasonable and adequate basis for its conclusions, and the compensation from the issuer is disclosed. *A third party research firm may help you promote your stock as long as their compensation is disclosed.

4.A.9

**Must provide a relevant fee schedule

GIPS requirements

**Standard deviation must be used to measure external dispersion; the interquartile range is only acceptable as a measure of internal dispersion. **The use of time-weighted return would occur when the firm does NOT control the timing of external cash flows. **The use of money-weighted return would occur when the firm DOES control the timing of cash flows. -if there are no external cash flows then time-weighted return = money-weighted return **The GIPS standards require cash and cash equivalents to be included in total return calculations for all asset classes The use of trade-date accounting establishes the true economic value of an assets and improves the accuracy of performance measurements.

Standard 3.A.6.

**Terminated portfolios must be included in the historical returns of the appropriate composites up to the last full measurement period (last month) that the portfolio was under management. **If close on July 15 use as of June 30th. -Portfolios should be removed at the start of the period of notification.

4.A.33

**The annualized trailing 36-month standard deviation of the composite and benchmark must be provided for [external dispersion]. -standard deviation allows for comparability across investment firms

Fees

**Under the GIPS, firms may present performance net or gross of fees, but gross-of-fees performance is recommended. *-month-end account value may be used to calculate fees ***-Custody fees should [NOT] be considered direct transaction costs. They are not to be treated as a trading expense.

code of ethics#**

*-Act with integrity, competence, diligence, and respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets. *-Place the integrity of the investment profession and the interests of clients above their own personal interests. *-Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities -Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession. -Promote the integrity and viability of the global capital markets for the ultimate benefit of society. **-Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

*GIPS are necessary for the following reasons:

*-Enhancing consistency in performance presentation for inter-country holdings *-Enhancing consistency in the use of standards *-Enhancing competition in global market *-Enhancing investor confidence

GIPS Private Equity Requirements

*-Private equity assets must be valued at least annually, at fair value, and according to GIPS Valuation Principles -Annualized since-inception internal rate of return (SI-IRR). -SI-IRR must be calculated using daily or monthly cash flows prior to January 1, 2011. -Beginning January 1, 2011, the SI-IRR must be calculated using daily cash flows. Stock distributions must be valued at the time of the distribution and included as cash flows. -For fund of funds, all returns must be net of all partnership fees, fund fees, expenses, and carried interest. *Beginning January 1, 2011, firms must present both the net-of-fees and gross-of-fees annualized SI-IRR of the composite for each year since inception and through the final liquidation date. #***The required ratios for presentation are: -total value to paid-in capital, -cumulative distributions to paid-in capital, -residual value to paid-in capital. -paid-in capital to committed capital, -total value = residual value + cumulative distributions

All advertisements that include a claim of compliance with the GIPS Advertising Guidelines must include the following:

*1 - A description of the firm. 2- How an interested party can obtain a presentation that complies with the requirements of GIPS standards and/or a list and description of all firm composites. 3- The GIPS Advertising Guidelines compliance statement: The briefest of the three full compliance statements is shown below for comparison. A full statement must still be used in the GIPS report. *[Insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. [Insert name of firm] has not been independently verified. 4 - A description of the composite being advertised. 5- total return 6 - Whether performance is shown gross and/or net of investment management fees. 7 - The benchmark total return for the same periods for which the composite return is presented and a description of that benchmark. 8- The currency used to express returns. 9 - Describe the extent and use of leverage, derivatives, and short selling in sufficient detail to identify the risks involved. 10 - When presenting noncompliant performance information for periods prior to January 1, 2000, in an advertisement, firms must disclose the period(s) and which specific information is not in compliance with the GIPS standards. The Advertising Guidelines also suggest that firms may present other information, though this supplemental information should be of equal or lesser prominence than the required information described previously.

A) Loyalty to Clients

*1-Place the client's interest ahead of the firm's. -don't incentives excessive risk taking. 2-Maintain client confidentiality. -firms should implement an anti-money laundering policy 3-Refuse business relationships and gifts that would compromise independence, objectivity, and loyalty to clients. -disclose gifts to manger and don't accept big ones (from service providers)

E) Performance and Valuation

*1-Present performance data that is fair, accurate, relevant, timely, and complete. (Recommend GIPS) -Have the responsibility to present performance information that is fair, accurate, relevant, and complete. Given this requirement, it may not always be possible to provide this information to clients within three days, particularly in complicated scenarios. *2-Use fair market prices when available and fair valuation in other cases. (Have an independent third party value client accounts)

B) Investment Process and Actions

*1-Use reasonable care and judgment in managing client assets. 2-Do not manipulate price and volume of stocks 3-Deal fairly with all clients when providing information, advice, and taking actions. 4-Have a reasonable and adequate basis for recommendations 5-For portfolios managed to a specific style or strategy, managers do not have to evaluate the suitability to a given clien 6-When managing portfolios of a specific client, understand the client's objectives and constraints in order to take suitable actions for that client. *-Establish and update a written IPS for that client at least annually (can do some clients quarterly and other annually)

Standard 2.6

*A member or candidate may not solicit current clients away from their [current employer] under Standard IV(A) "Loyalty." -if leave to a new company then can.

Standard 5.A.1. The following items must be reported for each composite presented:

*At least five years of annual performance (or a record for the period since firm or composite inception if the firm or composite has been in existence less than five years) that meets the requirements of the GIPS standards; after presenting five years of performance, the firm must present additional annual performance up to a minimum of ten years. Annual returns for all years clearly identified as gross- or net-of-fees. For composites with a composite inception date beginning on or after January 1, 2011, when the initial period is less than a full year, firms must present returns from the composite inception through the initial year-end. For composites with a termination date of January 1, 2011, or later, returns from the last annual period through the termination date. *Annual returns for a benchmark, which reflects the mandate, objective, or strategy of the portfolio. **The number of portfolios in the composite at each year-end. If the composite contains five portfolios or less, the number of portfolios is not required. -**additionally, dispersion does not have to be reported. *-However there is no minimum required number of portfolios necessary for composite creation. *The amount of assets in the composite at the end of each annual period. Either total firm assets or composite assets as a percentage of firm assets at each annual period end. A measure of dispersion of individual portfolio returns for each annual period. If the composite contains five portfolios or less for the full year, a measure of dispersion is not required.

Standard 1.A.3.

*Beginning on or after January 1, 2001, portfolios must be valued at least monthly. (Used to be quarterly) *-or must be valued after large external cash flows Less frequent valuation provisions may apply to real estate and private equity *States that for periods beginning January 1, 2010, firms must value portfolios on the date of all large cash flows. *1.1.A.3.c states that portfolios must be valued "no more frequently than required by the valuation policy."

Standard 3.A.5

*Composites must include new portfolios on a timely and consistent basis after the portfolio comes under management.

Standard 4.A.15.

*For any performance presented for periods prior to January 1, 2000, that does not comply with the GIPS standards, firms must disclose the periods of non-compliance.

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*GIPS verification [cannot] be carried out for a single composite. *Verification is not a requirement for GIPS compliance, but it is strongly encouraged. *The minimum initial period for which verification can be performed is one year, or from the firm's inception date through the period-end if that timeframe is less than one year. The standards recommend (but do not require) that verification cover all periods for which the firm claims compliance. It might seem surprising that you cannot just report the average after-tax return of the clients, but consider issues: (1) clients have no reason to share their personal tax return with the manager One of the major difficulties with after-tax performance reporting is finding an appropriate benchmark. There are no after-tax capital market indices available that account for capital gains taxes, so an after-tax capital market index would not be a suitable benchmark. *Prior to January 1, 2011, after-tax performance reporting was encouraged. Effective January 1, 2011, after-tax performance reporting is considered supplemental information.

Priority of Transactions.

*Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner. *However, can sell shares EVEN if your firm has a buy rating. *Client accounts that belong to family members should be treated like any other account so long as there is no direct interest on the part of the analyst

Fair Dealing.

*Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities. -The firm must give its clients an opportunity to act on recommendation changes before they trade *-can give higher-paying clients more research but must give report to high and low paying customers at the same time. -should provide research to clients and the firm's PM's at the same time. -should not allocate IPO shares based on fees from clients.

Responsibilities of Supervisors.

*Members and Candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards. *-asking them to read a manual is NOT enough. They should be tested on the standards. *-The responsibility to implement procedures and the authority to enforce the procedures should both reside with the compliance officer *if think someone is lying must first confirm before potentially ruining their reputation by reporting them. *if an employee violated a violation then place limits on the employee's activities rather then reporting up the chain of command. *if your assistant sent out a brochure with a violation on it YOU are responsible because you did not look it over first. *if a non CFA member committed fraud no need to report to CFA society.

*Additional Compensation Arrangements.

*Members and Candidates must not accept gifts, benefits, compensation, or consideration that competes with, or might reasonably be expected to create a conflict of interest with, their employer's interest unless they obtain written consent from ALL parties involved. **-If a client offers a bonus that depends on the future performance of her account, this is an additional compensation arrangement that requires written consent in advance. *-If a client offers a bonus to reward a member for her account's past performance, this is a gift that requires disclosure to the member's employer to comply with Standard I(B) Independence and Objectivity. *can be a football ref without consent because no conflict of interest.

Recommended Standard 4.B.5:

*Recommendation that if a parent company contains multiple defined firms, each firm within the parent company should disclose a list of the other firms contained within the parent company.

Standard 2.A.2

*Requires that beginning January 1, 2010, GIPS requires that firms value portfolios on the date of any large external cash flows and time weight the subperiod returns. -GIPS require geometrically linking of subperiod returns Between 2005 and 2010 approximate time weighted rates of return that adjusted for daily-weighted cash flows were used such as the modified Dietz and modified internal rate of return methods.

GIPS Calculation Methodology Requirements

*Returns must be calculated on a total return basis using beginning and ending fair value. (EV-BV)/BV -total return = Total return, including realized and unrealized gains plus income must be used. -Beginning and ending portfolio value must include income earned, realized gain and loss, and unrealized gain and loss. Firms must use trade-date accounting for periods beginning January 1, 2005.

*Standard 4.A.2-4.A.13

*Standard 4.A.2. Firms must disclose the definition of "firm" used to determine the total firm assets and firm-wide compliance. *The definition of the "firm" under the GIPS standards establishes the boundaries for what constitutes firm assets, and the set of portfolios that must be included in at least one composite. *Standard 4.A.3. Firms must disclose the composite description. *Standard 4.A.4. Firms must disclose the benchmark description. Standard 4.A.5. When presenting gross-of-fees returns, firms must disclose if any other fees are deducted in addition to the direct trading expenses. Standard 4.A.6. When presenting net-of-fees returns, firms must disclose a) if any other fees are deducted in addition to the investment management fee and direct trading expenses, b) if model or actual investment management fees are used, and c) if returns are net of performance-based fees. *Standard 4.A.7. Firms must disclose the currency used to express performance. ***Standard 4.A.8. Firms must disclose which measure of internal dispersion is used. *Standard 4.A.9. Firms must disclose the fee schedule appropriate to the compliant presentation. *Standard 4.A.10. Firms must disclose the composite creation date. Standard 4.A.11. Firms must disclose that the firm's list of composite descriptions is available upon request. Standard 4.A.12. Firms must disclose that policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. **Standard 4.A.13. Firms must disclose the presence, use, and extent of leverage, derivatives, and short positions, [if MATERIAL], including a [description of the frequency of use and characteristics of the instruments sufficient to identify risks.] *4.A.25 states, "For periods beginning on or after 1 January 2006, firms must disclose the use of a sub-advisor and the [periods a sub-advisor was used]."

Verification

*The primary purpose of verification is to increase the level of confidence that a firm claiming GIPS compliance did, indeed, adhere to the Standards on a firm-wide basis. The verification process can be performed on a selected number of composites as a sample indicating all composites comply with the GIPS requirements after verification is complete.

Generally a performance track record of a composite must stay with the firm where it was generated.

*The record is not "portable," but if a past firm or affiliation is acquired and if three other conditions are met, the past record must be linked to and used by the new or acquiring firm. The three conditions are: -Substantially all the investment decision makers are employed by the new firm (e.g., research department, portfolio managers, and other relevant staff); -The decision-making process remains substantially intact and independent within the new firm; -The new firm has records that document and support the reported performance. **If a firm acquires another firm or affiliation, the firm has one year to bring any noncompliant assets into compliance. when a manager leaves a firm to start or join another firm, the manager cannot present the old firm's past performance in the new firm's composite. The composite record is assumed to remain with the old firm because that firm owns the strategy and process.

CONFLICTS OF INTEREST - Disclosure of Conflicts.

*if receive compensation for fees but company does not allow you to talk about compensation then you must renegotiate your contract because telling the client would violate Loyalty to client. *if the boss is on the board and looks over a research report of that firm must disclose he is on board *if stock is in children's trust must disclose *Disclosure of Conflicts requires a member who becomes a director of a publicly listed company to be isolated from those making investment decisions concerning the publicly listed company at which the employee is a director.-However, can still have in portfolios because it may be in the clients best interest to own it. *CAN provide a 100% guarantee to buy the private placements of the corporate finance clients if fully disclose the matter to all clients involved. *Sharing information on an upcoming recommendation with outsiders is disloyal to his firm. Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively. -includes being a market maker

All of the normal provisions of GIPS still apply with the following being particularly important: WRAP/SMA's

-1) the performance results of the end user client must be computed, documented, and verified. The underlying investment manager may choose to rely on the sponsor to do so (with due diligence to verify the sponsor's ability) or maintain her own tracking and shadow accounting of the account's performance. **-(2) Returns must be calculated after actual trading expenses. If the trading expenses cannot be identified and separated from the bundled wrap fee, the entire bundled fee including the trading expenses must be deducted from the return. -(3) All of the fees that are included in the bundled fee must be disclosed. -(4) Composite results must disclose the percentage of composite assets made up of portfolios with bundled fees.

Standard 5.A.1. The following items must be reported for each composite presented:

-At least five years of annual performance (or a record for the period since firm or composite inception if the firm or composite has been in existence less than five years) that meets the requirements of the GIPS standards; after presenting five years of performance, the firm must present additional annual performance up to a minimum of ten years. -Annual returns for all years clearly identified as gross- or net-of-fees. -For composites with a composite inception date beginning on or after January 1, 2011, when the initial period is less than a full year, firms must present returns from the composite inception through the initial year-end. -For composites with a termination date of January 1, 2011, or later, returns from the last annual period through the termination date. -Annual returns for a benchmark, which reflects the mandate, objective, or strategy of the portfolio. The number of portfolios in the composite at each year-end. If the composite contains five portfolios or less, the number of portfolios is not required. -The amount of assets in the composite at the end of each annual period. -Either total firm assets or composite assets as a percentage of firm assets at each annual period end. *-A measure of dispersion of individual portfolio returns for each annual period. If the composite contains five portfolios or less for the full year, a measure of dispersion is [NOT] required.

Performance Presentation Recommendations

-Encourage firms to adhere to Global Investment Performance Standards. *-Consider the sophistication of the audience to whom a performance presentation is addressed. -Present the performance of a weighted composite of similar portfolios rather than the performance of a single account. **-Include terminated accounts as part of historical performance and clearly state when they were terminated. (must keep even if has been 10 years) -MUST ALWAYS KEEP *Must disclose that you are part of a team of managers if presenting the performance of your fund which is multi managed. *disclose whether the performance results are before or after fees. -Include all appropriate disclosures to fully explain results (e.g., model results included, gross or net of fees, etc.). -Maintain data and records used to calculate the performance being presented.

GIPS Objectives

-Establish global, industry-wide best practices for the calculation and presentation of investment performance, so that performance presentations for GIPS-compliant firms can be compared regardless of their country location. -Facilitate the accurate and unambiguous presentation of investment performance results to current and prospective clients. -Facilitate a comparison of the historical performance of investment management firms so that clients can make educated decisions when hiring new managers. -Encourage full disclosure and fair global competition without barriers to entry. -Encourage self-regulation.

Fundamentals of Compliance

-Firms must establish, update on a timely basis, and document policies and procedures for meeting GIPS. This includes policies for error correction. Manuals and handbooks are proper documentation. -A firm may not assert that calculations are in accord with GIPS unless it is a firm in compliance with GIPS, making a performance presentation to an individual firm client. *-Firms cannot claim partial compliance with GIPS or in compliance *-If subdivisions are distinct business entities, the company can define each of its divisions as a separate firm for the sake of GIPS compliance. Thus, one division can be GIPS compliant while the other is not.

GIPS Characteristics

-Firms must meet all requirements on a firm-wide basis in order to claim compliance. -Only investment management firms may claim compliance; individuals may not claim GIPS compliance **-The GIPS require managers to include all actual fee-paying, discretionary portfolios in composites defined according to similar strategy and/or investment objective. (Non-fee-paying portfolios that are discretionary may be included.) ***-Firms must present a minimum of five years of GIPS-compliant history or since inception if less than five years. After presenting at least five years of compliant history, the firm must add annual performance each year going forward, up to ten years, at a minimum.

Standard V(A) Diligence and Reasonable Basis Recommendations

-Have a policy requiring that research reports and recommendations have a basis that can be substantiated as reasonable and adequate. -Have detailed, written guidance for proper research, supervision, and due diligence. -Have measurable criteria for judging the quality of research, and base analyst compensation on such criteria. -Have written procedures that provide a minimum acceptable level of scenario testing for computer-based models and include standards for the range of scenarios, model accuracy over time, and a measure of the sensitivity of cash flows to model assumptions and inputs. -Have a policy for evaluating outside providers of information that addresses the reasonableness and accuracy of the information provided and establishes how often the evaluations should be repeated. -Adopt a set of standards that provides criteria for evaluating external advisers and states how often a review of external advisers will be performed.

DUTIES TO EMPLOYERS - Additional Compensation Arrangements Recommendations

-Make an immediate written report to the employer detailing any proposed compensation and services, if additional to that provided by the employer. It should disclose the nature, approximate amount, and duration of compensation. -Members and candidates who are hired to work part time should discuss any arrangements that may compete with their employer's interest at the time they are hired and abide by any limitations their employer identifies. *-obtain WRITTEN consent from both their employer and the clients for whom they undertake independent practice. *Members must keep information about current and prospective clients confidential. Client names would be considered confidential, particularly when tied to the other previously mentioned information to be give

Standard III(E) Preservation of Confidentiality Recommendations

-Members should avoid disclosing information received from a client except to authorized coworkers who are also working for the client. Consider whether the disclosure is necessary and will benefit the client. -Members should follow firm procedures for storage of electronic data and recommend adoption of such procedures if they are not in place. -Assure client information is not accidentally disclosed.

Communication with Clients and Prospective Clients Recommendations

-Selection of relevant factors in a report can be a judgment call so members should maintain records indicating the nature of the research, and be able to supply additional information if it is requested by the client or other users of the report. -Encourage the firm to establish a rigorous method of reviewing research work and results.

Recommendations for members

-Submit to clients, at least quarterly, itemized statements showing all securities in custody and all debits, credits, and transactions. Disclose where client assets are held and if they are moved. Keep client assets separate from others' assets. -If in doubt as to the appropriate action, what would you do if you were the client? If still in doubt, disclose and seek written client approval. -Encourage firms to address these topics when drafting policies and procedures regarding fiduciary duty: -Follow applicable rules and laws. -Establish investment objectives of client. -Consider suitability of a portfolio relative to the client's needs and circumstances, the investment's basic characteristics, or the basic characteristics of the total portfolio. -Diversify unless account guidelines dictate otherwise. -Deal fairly with all clients in regard to investment actions. -Disclose conflicts of interest. -Disclose manager compensation arrangements. -Regularly review actions for consistency with documents. -Vote proxies in the best interest of clients and ultimate beneficiaries. -Maintain confidentiality. -Seek best execution. -Put client interests first.

Upon completion of verification, a verification report is issued that must confirm the following:

-The investment firm has complied with all the composite construction requirements of GIPS on a firm-wide basis. -The firm's processes and procedures are designed to calculate and present performance results in compliance with the GIPS.

The GIPS Handbook identifies the following acceptable methods for calculating internal dispersion:

-The range of annual returns. -The high and low annual returns. -Interquartile range. -The standard deviation of equal-weighted annual return. -The asset-weighted standard deviation of annual returns. *-The standard deviation across equally-weighted portfolios is the most widely accepted measure of internal dispersion.

Open-ended and evergreen funds

-covered by the general provisions of the GIPS. -Redemptions and subscriptions may be made after the funds' inceptions; therefore, open-ended and evergreen funds do not have fixed levels of capital with a set number of investors.

D) Risk Management, Compliance, and Support

1-Develop detailed P&Ps to comply with the AMC and all legal/regulatory requirements. **2-Appoint a competent, knowledgeable, credible compliance officer with authority to implement the P&Ps. [independent recommended], can be an employee) *-not a PM because they are not independent **-compliance officer Should report to the CEO or to the Board (not other C-suite) *-Board should not manage funds 3-Use an independent third party to verify that information provided to clients is accurate and complete 4-Maintain records to document investment actions. 5-Employ sufficient and qualified staff to meet all AMC requirements. 6-Establish a business continuity plan to deal with disasters or market disruptions. 7-Establish a firm-wide risk management plan to measure and manage the risks taken

C) Trading

1-Do not act or cause others to act on material nonpublic information that could affect the value of public securities. *-Establishing information barriers 2-Give clients priority over the firm. (trade for them first) *3-Use client commissions only to pay for investment-related products and services that directly benefit the client, not for the management of the firm. *4-Seek best execution for all client trades. -If trades only go through one stockbroker, best execution cannot be ensured 5-Establish policies for fair and equitable trade allocation. All clients for whom the trade is suitable should be given the opportunity to participate.

F) Disclosures

1-Ongoing, timely communication with clients using appropriate methods. 2-Ensure truthful, accurate, complete, and understandable communication. Use plain language. 3-Determine what to disclose and how. Include any (all) material facts regarding the firm, personnel, investments, and the investment process.

Standard 3.A.10.

A portfolio could receive a significant external cash flow (defined as a cash flow large enough that the portfolio temporarily does not reflect the composite's style). The recommendation is to put the cash in a temporary new account that is not part of the composite until the funds are invested in accordance with the style. At that time the temporary new account should be merged into the existing account. Only if this is not possible should the account be temporarily removed from the composite until the account again reflects the composite style.

#**There are six components to the Asset Manager Code of Professional Conduct1:

A) Loyalty to Clients. B) Investment Process and Actions. C) Trading. D) Risk Management, Compliance, and Support. E) Performance and Valuation. F) Disclosures. **Related to these components are six general principles of conduct: *1-Always act ethically and professionally. *2-Act in the best interest of the client. *3-Act in an objective and independent manner. *4-Perform actions using skill, competence, and diligence. *5-Communicate accurately with clients on a regular basis. *6-Comply with legal and regulatory requirements regarding capital markets.

Misrepresentation Recommendations

Actions that would violate the Standard include: -Presenting third-party research as your own, without attribution to the source. *-Guaranteeing a specific return on securities that do not have an explicit guarantee from a government body or financial institution (long term gov bonds DO explicitly guarantee returns) -Selecting a valuation service because it puts the highest value on untraded security holdings. *-Selecting a performance benchmark that is not comparable to the investment strategy employed. (beware of energy companies VS oil futures not same thing) -Presenting performance data or attribution analysis that omits accounts or relevant variables. -Offering false or misleading information about the analyst's or firm's capabilities, expertise, or experience. -Using marketing materials from a third party (outside adviser) that are misleading. Recommendations for members -Understand the scope and limits of the firm's capabilities to avoid inadvertent misrepresentations. -Summarize your own qualifications and experience. -Make reasonable efforts to verify information from third parties that is provided to clients. -Regularly maintain webpages for accuracy. -Avoid plagiarism by keeping copies of all research reports and supporting documents and attributing direct quotes, paraphrases, and summaries to their source.

Standard 1.A.1.

All data and information necessary to support the firm's performance presentation, including calculations, must be stored and maintained.

*Allocating Shares

Allocating shares pro-rata and according to market cap of each portfolio is ok.

*Plagiarism

Applies to written materials, oral communications, and telecommunications. (not to .gov) -Company does NOT have to cite an employee's work because it is owned by the company. -Receiving a person's written permission does NOT absolve you of your responsibility to provide attribution to them. -if you learn about something from Jon and then go to the source and quote the source you do NOT need to cite Jon.

If a large client-directed withdrawal and the resulting liquidation of certain securities

GIPS recommend that the manager assumes a proportionate amount of each security is sold, in determining a fair tax adjustment to "add back."

*Referral Fees

CANNOT say "I will receive a referral fee if you invest in the fund" Members must disclose the nature of the consideration or benefit—for example, whether on a flat fee or percentage basis; a one-time or continuing benefit; or based on performance—together with the estimated monetary value

Standard 3.A.4.

Composites must be defined according to similar investment objectives and/or strategies. Composites must include all portfolios that meet the composite definition. The full composite definition must be made available on request. *Generic definitions such as "equity" or "fixed income" may be too broad to enable clients to make comparisons, so qualifiers such as sector, benchmark, capitalization (e.g., large, mid, small), style (e.g., value, growth, blend), or even risk-return profile may be useful. *-They CAN overlap

Global Investment Performance Standards (GIPS®)

Contain ethical and professional standards for the presentation of investment performance results. **The GIPS are a voluntary set of standards. (can still comply with CFA standards if not using GIPS) The GIPS should, therefore, be viewed as a minimum set of investment performance presentation standards.

#**Fall under GIPS Real Estate

Fall under GIPS Real Estate *-Publicly traded real estate securities, including any listed securities issued by public companies. -Land Fall under GIPS -*REITS *-Mortgage-backed securities (MBS). *-Private debt investments, including commercial and residential loans where the expected return is solely related to contractual interest rates without any participation in the economic performance of the underlying real estate.

Standard 4.A.13.

Firms must disclose the presence, use, and extent of leverage, derivatives, and short positions, if material, including a description of the frequency of use and characteristics of the instruments sufficient to identify risks.

Standard 1.A.7.

For periods beginning January 1, 2006, composites must have consistent beginning and ending annual valuation dates.

Standard 1.A.4.

For periods beginning January 1, 2010, firms must value portfolios as of the calendar month-end or the last business day of the month.

Standard 1.A.2.

For periods beginning on or after January 1, 2011, portfolios must be valued at fair value according to GIPS principles. Cost or book values are not permitted.

*GIPS Advertising Guidelines

For the purposes of these guidelines, an advertisement includes any materials that are distributed to or designed for use in newspapers, magazines, firm brochures, letters, media, or any other written or electronic material addressed to [more] than one prospective client or existing client.

x

Four global trends that present challenges to investment professionals include consumerism, regulations, globalization, and technological innovation.

**valuation

GIPS = valued at least monthly Real Estate = Quarterly (external valuation every 12 months) -hedge funds quarterly Private Equity = Annually (external valuation every 12 months) Hedge funds*Managers should report to clients at least quarterly, and when possible, within 30 days of the end of the period.

Standard 3.A.9.

If a firm sets a minimum asset level for portfolios to be included in a composite, no portfolios below that asset level can be included in that composite. Any changes to a composite-specific minimum asset level are not permitted to be applied retroactively.

*Standard 2.7

If an analyst CAN send a "Buy" recommendation to all clients. If an investment manager CANNOT recommend a buy to all clients without looking at their profiles. -A sell-side report can be distributed via any means of communication, including in-person recommendation, telephone conversation, media broadcast, and transmission by the computer such as on the Internet.

*Local Law vs Standard

If local laws or regulations related to [valuation] conflict with GIPS, firms are required to FOLLOW the local laws or regulations and disclose the conflict -not the more strict one always local law -If your business is in a country with stricter standards than GIPS but work in a country less strict must always follow more strict can't just follow GIPS.

*3.1 Chapter 3

If the firm puts out a sell-side note. Would be a violation of Fair Dealing to trade before others had a chance to see. However, would NOT be a violation of Material Nonpublic Information because they came to conclusions without insider knowledge.

GIPS Advertising Guidelines

In addition to the GIPS report, firms may also present a more abbreviated report following the GIPS Advertising Guidelines if they wish. This provision is intended to assist firms in their marketing efforts by allowing limited GIPS information to be presented without the rather cumbersome full GIPS report being presented. All advertisements that include a claim of compliance with the GIPS Advertising Guidelines must include the following: 1-A description of the firm. 2-How an interested party can obtain a presentation that complies with the requirements of GIPS standards and/or a list and description of all firm composites. *3-The GIPS Advertising Guidelines compliance statement: example- XXX claims compliance with the Global Investment Performance Standards (GIPS®)." (do NOT need to say "The firm's compliance has not been independently verified." 4-A description of the composite being advertised. **5-performance results must include period-to-date composite performance results [in addition] to either one-, three-, and five-year annualized composite returns [or] five years of annual composite returns. *6-Whether performance is shown gross and/or net of investment management fees. *7-The benchmark total return for the same periods for which the composite return is presented and a description of that benchmark. 8-The currency used to express returns. 9-Describe the extent and use of leverage, derivatives, and short selling in sufficient detail to identify the risks involved. 10-When presenting noncompliant performance information for periods prior to January 1, 2000, in an advertisement, firms must disclose the period(s) and which specific information is not in compliance with the GIPS standards.

DUTIES TO EMPLOYERS - Standard IV(A) Loyalty

In matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer. **Requires members and candidates to disclose to their employers any independent practice for [Compensation] in same industry. (includes volunteering if same industry) *-Can advise friends on personal time. -asking your team to switch companies with you is not a violation

Asset Manager Code AMC

Is global, voluntary, and applies to investment management firms.

*Standard 4.D

Managers should disclose to each client the actual fees and other costs charged to them, together with itemizations of such charges, when requested by clients. The disclosure should include the specific [management fee], [incentive fee], and the amount of [commissions paid on clients' behalf during the period].

DUTIES TO CLIENTS: Loyalty, Prudence, and Care

Members and Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. *Members and Candidates must act for the benefit of their clients and place their clients' interests before their employer's or their own interests. -if client tells you to use a bad broker you should use but tell the client about the downsides *-Can ask teammates to start a new company with you

Record Retention

Members and Candidates must develop and maintain appropriate records to support their investment analysis, recommendations, actions, and other investment-related communications with clients and prospective clients. If spoken still must keep a record *It is RECOMMENDED for 7 years NOT Required. *The standard allows firms to keep hard copies and/or electronic copies of documents.

Referral Fees

Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from, or paid to, others for the recommendation of products or services.

Conduct as Participants in CFA Institute Programs

Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of CFA Institute programs. If holding a CFA event should let competitors present as well

**D. Misconduct

Members and Candidates must not engage in any professional conduct involving [dishonesty], fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence. Acts a member commits outside his professional capacity are misconduct if they reflect poorly on the member or candidate's honesty, integrity, or competence (e.g., theft or fraud). -coming to work drunk *Until an investigation is complete, there is no obligation to suspend the manager or take any other action even if they committed IPS errors.

Market Manipulation.

Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants. *can't pump a stock on CNBC then sell right after.

c. Misrepresentation

Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

PROFESSIONALISM: A Knowledge of the Law

Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and Candidates must not knowingly participate or assist in any violation of laws, rules, or regulations and must disassociate themselves from any such violation. *-If you know that violations of applicable rules or laws are taking place, either by coworkers or clients, you must approach your supervisor or compliance department to remedy the situation. (if not resolved then you must resign) *Standard IV(C) states that the member or candidate should decline in writing to accept supervisory responsibilities until the firm adopts reasonable procedures to allow him to adequately exercise such responsibility. -Fight at a rugby game is ok

Communication with Clients and Prospective Clients

Members and Candidates must: *Requires members to disclose the basic format of the investment processes used to analyze and select securities, the processes used to construct portfolios, and any changes to these processes *-Disclose to clients and prospective clients significant limitations and risks associated with the investment process. (can't just show positive returns) *-"These advisers have the necessary expertise to manage property assets" is not likely to provide enough information for the clients to understand the investment methodologies or strategies implemented by the outside advisers. *Managers must disclose to prospective clients the average or expected expenses or fees clients are likely to incur, and to existing clients the actual fees and other costs charged to them. *An abbreviated report may be used to communicate with clients as long as a full report providing more detailed information is maintained and made available to any clients or prospects requesting additional information. -Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients. -Distinguish between fact and opinion in the presentation of investment analysis and recommendations.

Diligence and Reasonable Basis

Members and Candidates must: -Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions. -Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action. *-Submanagers should not be selected by cost structure alone, as the quality and appropriateness of the submanager is the PM's responsibility. *Requires analysts who use third-party research to review its assumptions and evaluate the independence and objectivity of the research. *do not recommend a stock if it is likely overvalued

INTEGRITY OF CAPITAL MARKETS: Material Nonpublic Information

Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information. Information is "material" if its disclosure would affect the price of a security or if a reasonable investor would want the information before making an investment decision. Information that is ambiguous as to its likely effect on price may not be considered material. **mosaic theory, reaching an investment conclusion through perceptive analysis of public information combined with non-material nonpublic information is NOT a violation of the Standard. *if talking about a merger should put the acquirer on the restricted list immediately. *-or if confirmed a merger is happening *can't buy Retail ETF if know LULU is going to beat earnings. *can listen to non-public information just can't act on it.

Module 6.10: Evaluating a Report

Module 6.10: Evaluating a Report

Module 6.1: GIPS Overview

Module 6.1: GIPS Overview

Module 6.4: Composites

Module 6.4: Composites

Module 6.7: Real Estate and Private Equity

Module 6.7: Real Estate and Private Equity

Module 6.8: Wrap Fee/Separately Managed Accounts and Advertising

Module 6.8: Wrap Fee/Separately Managed Accounts and Advertising

Module 6.9: Verification and After-Tax Reporting

Module 6.9: Verification and After-Tax Reporting

4.A.12

Must state that policies and procedures for calculating and presenting performance will be provided upon request.

Standard 4.A.1. (read don't memorize)

Once a firm has met all the requirements of the GIPS standards, the firm must disclose its compliance with the GIPS standards using one of the following compliance statements. **For firms that are verified: [Insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS®)and has prepared and presented this report in compliance with the GIPS standards. [Insert name of firm] has been independently verified for the periods [insert dates]. The verification report(s) is/are available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. For composites of a verified firm that have also had a performance examination: [Insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. [Insert name of firm] has been independently verified for the periods [insert dates]. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) the firm's processes and procedures are designed to calculate and present performance in compliance with the GIPS standards. The [insert name of composite] composite has been examined for the periods [insert dates]. The verification and examination reports are available upon request. *For firms that have not been verified: [Insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. [Insert name of firm] has not been independently verified.

Inquiry

Once an inquiry has begun, the Professional Conduct staff may request (in writing) an explanation from the subject member or candidate and may: (1) interview the subject member or candidate, (2) interview the complainant or other third parties, and/or (3) collect documents and records relevant to the investigation.

**Standard 3.A.7.

Portfolios must not be switched from one composite to another unless documented changes in client guidelines or the redefinition of the composite make it appropriate. The historical record of the portfolio must remain with the original composite. if a portfolio falls below a specified minimum and the drop is not likely to be permanent, then the portfolio may remain in that composite in the short-term. -9 months not short term

Establishing Trust

Professions can establish trust by normalizing practitioner behavior by developing and promulgating codes and standards. They can also do so by providing a service to society that exceeds (as opposed to merely meeting) the prescribed codes and standards.

D. Misconduct Recommendations

Recommendations for firms -Develop and adopt a code of ethics and make clear that unethical behavior will not be tolerated. -Give employees a list of potential violations and sanctions, including dismissal. -Check references of potential employees.

Responsibilities of Supervisors Recommendations

Recommendations for members -A member should recommend that his employer adopt a code of ethics. Members should encourage employers to provide their codes of ethics to clients. Once the compliance program is instituted, the supervisor should: -Distribute it to the proper personnel. -Update it as needed. -Continually educate staff regarding procedures. -Issue reminders as necessary. -Require professional conduct evaluations. -Review employee actions to monitor compliance and identify violations. -Respond promptly to violations, investigate thoroughly, increase supervision while investigating the suspected employee, and consider changes to prevent future violations. Recommendations for firms -Do not confuse the code with compliance. The code is general principles in plain language. Compliance is detailed procedures to meet the code. Compliance procedures should: -Be clearly written. -Be easy to understand. -Designate a compliance officer with authority clearly defined. -Have a system of checks and balances. -Establish a hierarchy of supervisors. -Outline the scope of procedures. -Outline what conduct is permitted. -Contain procedures for reporting violations and sanctions.

Standard III(B) Fair Dealing Recommendations

Recommendations for members -Encourage firms to establish compliance procedures requiring proper dissemination of investment recommendations and fair treatment of all customers and clients. -Maintain a list of clients and holdings—use to ensure that all holders are treated fairly. Recommendations for firms -Limit the number of people who are aware that a change in recommendation will be made. -Shorten the time frame between decision and dissemination. -Publish personnel guidelines for pre-dissemination—have in place guidelines prohibiting personnel who have prior knowledge of a recommendation from discussing it or taking action on the pending recommendation. -Disseminate new or changed recommendations simultaneously to all clients who have expressed an interest or for whom an investment is suitable. -Establish systematic account review—ensure that no client is given preferred treatment and that investment actions are consistent with the account's objectives. -Disclose available levels of service and the associated fees. -Disclose trade allocation procedures. -Develop written trade allocation procedures to: -Document and time stamp all orders. -Bundle orders and then execute on a first come, first fill basis. -Allocate partially filled orders. -Provide the same net (after costs) execution price to all clients in a block trade.

Suitability Recommendations

Recommendations for members -Establish a written IPS, considering type of client and account beneficiaries, the objectives, constraints, and the portion of the client's assets managed. -Review the IPS annually and update for material changes in client and market circumstances. -Develop policies and procedures to assess suitability of portfolio changes. Consider the impact on diversification, risk, and meeting the client's investment strategy.

A Knowledge of the Law Recommendations

Recommendations for members -Establish, or encourage employer to establish, procedures to keep employees informed of changes in relevant laws, rules, and regulations. -Review, or encourage employer to review, the firm's written compliance procedures on a regular basis. -Maintain, or encourage employer to maintain, copies of current laws, rules, and regulations. -When in doubt about legality, consult compliance personnel or a lawyer. -When dissociating from violations, keep records documenting the violations, encourage employer to bring an end to the violations. -There is no requirement in the Standards to report wrongdoers, but local law may require it; members are "strongly encouraged" to report violations to CFA Institute Professional Conduct Program. Recommendations for firms -Have a code of ethics. -Provide employees with information on laws, rules, and regulations governing professional activities. -Have procedures for reporting suspected violations.

Standard IV(A) Loyalty Recommendations

Recommendations for members -Keep personal and professional social media accounts separate. Business-related accounts approved by the firm constitute employer assets. -Understand and follow the employer's policies regarding competitive activities, termination of employment, whistleblowing, and whether you are considered a full- or part-time employee, or a contractor. Recommendations for firms -Employers should not have incentive and compensation systems that encourage unethical behavior. -Establish codes of conduct and related procedures.

Material Nonpublic Information: Recommendations

Recommendations for members -Make reasonable efforts to achieve public dissemination by the firm of information they possess. -Encourage their firms to adopt procedures to prevent the misuse of material nonpublic information. Recommendations for firms -Issue press releases prior to analyst meetings to assure public dissemination of any new information. -Adopt procedures for equitable distribution of information to the market place (e.g., new research opinions and reports to clients). -Establish firewalls within the organization for who may and may not have access to material nonpublic information. Generally, this includes having the legal or compliance department clear interdepartmental communications, reviewing employee trades, documenting procedures to limit information flow, and carefully reviewing or restricting proprietary trading whenever the firm possesses material nonpublic information on the securities involved. -Ensure that procedures for proprietary trading are appropriate to the strategies used. A blanket prohibition is not required. -Develop procedures to enforce firewalls with complexity consistent with the complexity of the firm. -Physically separate departments. -Have a compliance (or other) officer review and authorize information flows before sharing. -Maintain records of information shared. -Limit personal trading, require that it be reported, and establish a restricted list of securities in which personal trading is not allowed. -Regularly communicate with and train employees to follow procedures.

B. Independence and Objectivity Recommendations

Recommendations for members -Members or their firms should pay for their own travel to company events or tours when practicable and limit use of corporate aircraft to trips for which commercial travel is not an alternative. -don't accept money from company you are covering Recommendations for firms -Establish policies requiring every research report to reflect the unbiased opinion of the analyst and align compensation plans to support this principal. -Establish and review written policies and procedures to assure research is independent and objective. -Establish restricted lists of securities for which the firm is not willing to issue adverse opinions. Factual information may still be provided. -Limit gifts from non-clients to token amounts. -Limit and require prior approval of employee participation in equity IPOs. -Establish procedures for supervisory review of employee actions. -Appoint a senior officer to oversee firm compliance and ethics.

Disclosure of Conflicts Recommendations

Recommendations for members Any special compensation arrangements, bonus programs, commissions, performance-based fees, options on the firm's stock, and other incentives should be disclosed to clients. If the firm refuses to allow this disclosure, document the refusal and consider disassociating from the firm.

Record Retention Recommendations

Recommendations for members Maintain notes and documents to support all investment communications. Recommendations for firms If no regulatory standards or firm policies are in place, the Standard recommends a seven-year minimum holding period.

Standard VI(C) Referral Fees Recommendations

Recommendations for members Members should encourage their firms to adopt clear procedures regarding compensation for referrals. Recommendations for firms Have an investment professional advise the clients at least quarterly on the nature and amount of any such compensation.

Standard VI(B) Priority of Transactions Recommendations

Recommendations for members Members should encourage their firms to adopt the procedures listed in the following recommendations for firms and disclose these to clients. Recommendations for firms -All firms should have basic procedures in place that address conflicts created by personal investing. The following areas should be included: -Establish limitations on employee participation in equity IPOs and systematically review such participation. -Establish restrictions on participation in private placements. Strict limits should be placed on employee acquisition of these securities and proper supervisory procedures should be in place. Participation in these investments raises conflict of interest issues similar to those of IPOs. -Establish blackout/restricted periods. Employees involved in investment decision making should have blackout periods prior to trading for clients—no front running (i.e., purchase or sale of securities in advance of anticipated client or employer purchases and sales). The size of the firm and the type of security should help dictate how severe the blackout requirement should be. -Establish reporting procedures, including duplicate trade confirmations, disclosure of personal holdings and beneficial ownership positions, and preclearance procedures. -Disclose, upon request, the firm's policies regarding personal trading.

Standard 2.B.1.

Returns should be calculated net of non-reclaimable withholding taxes on dividends, interest, and capital gains. Reclaimable withholding taxes should be accrued.

*3.3

Revaluing for large cash flows methodology February:RFeb1-15 = (217,000 - 208,000)/208,000 = 4.33% RFeb16-28 = (263,000 - 257,000)/257,000 = 2.33% RFeb1-28 = [(1 + 0.0433) × (1 + 0.0233)] - 1 = 6.76%

SI-IRR or SIRR

Since Inception Internal Rate of Return.x

GIPS Input Data Recommendations (Standards 1.B.1-4)

Standard 1.B.1. Rather than only at large external cash flows, portfolios should be valued at each external cash flow. Standard 1.B.2. Valuations should be obtained from an independent third party. *Standard 1.B.3. Dividends from equities should be accrued as of the ex-dividend date. Standard 1.B.4. When presenting net-of-fees returns, firms should accrue investment management fees.

*

The Code and Standards apply to individual members and candidates of CFA Institute, but firms are encouraged to adopt the Code and Standards as part of their firm code of ethics. The CFA Institute Asset Manager Code has been drafted specifically for firms.

x

The GIPS standards describe investments that should not be included in the specific GIPS real estate standards. -Those investments would fall under the general provisions of the GIPS standard and include: 1) publicly traded real estate securities (i.e. REITs), 2) mortgage-backed securities, 3) private debt investments.

There is a framework for practice and behavior for investment professionals that is detailed in The Standards of Practice Handbook.

The emphasis is on providing an ethical (not objective) approach to providing services as reflected in the coverage of ethics and professional standards at all three levels of the CFA curriculum. The CFA curriculum consists of specific education and expert (not general) knowledge needed to be an investment professional.

-Interquartile range.

The interquartile range is the middle 50% of a population, excluding the top 25% and bottom 25%. Hence, it measures the part of the population between the bottom of the first quartile and the bottom of the third quartile.

Standard 0.A.10

The list must include not only all the firm's current composites but also any that have been discontinued within the last five years.

The most accurate calculation is the daily valuation method, for which a new subperiod is defined on the date of any cash flows. This method will be necessary for all periods after January 1, 2010.

The month divides into three periods: period 1 return = (51.5 − 50.0) / 50 = 1.5 / 50 = 3.00% period 2 return = (59.0 − 56.5) / 56.5 = 2.5 / 56.5 = 4.42% period 3 return = (55.0 − 57.0) / 57.0 = -2 / 57.0 = -3.51% geometric linking for the month = (1.0300 × 1.0442 × 0.9649) − 1 = 3.78%

*x

The pre-liquidation method calculates after-tax returns based on income earned and gains and losses actually recognized over the period through asset sales. This method ignores unrealized gains and losses, generally understating tax liability (gains are more likely in the long run) and overstating after-tax return. The mark-to-liquidation method assumes all gains, whether recognized or not, are taxed each period. This method ignores the value of tax deferral, overstating tax liability and understating after-tax return

*Practice Analysis

The process used to update the Global Body of Investment Knowledge and the Candidate Body of Knowledge.

x

The return of the composite is the weighted average monthly return of the accounts in the composite (before 2010 could be quarterly) **Weights can be based on either beginning of period account value or beginning of period plus weighted average ECFs for the period. End of period account values cannot be used.

x

These GIPS provisions were adopted January 1, 2006, and apply to wrap fee/separately managed accounts (WFSMAs) where a GIPS-compliant investment manager serves as the subadviser to a sponsor. -performance presentations to potential wrap fee clients must be net of the entire wrap fee.

The mission of CFA Institute

To lead the investment profession globally, by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society."

*Total Firm Assets

Total firm assets include all discretionary and [non-discretionary] assets under management within the defined firm. They do not include assets assigned to a sub-adviser unless the firm has discretion over the selection of the sub-adviser.

Suitability

When Members and Candidates are in an advisory relationship with a client, they must: *-Make a [reasonable] inquiry into a client's or prospective clients' investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly. (This means if they don't tell you their risk level you CAN still advise them because you tried) -Determine that an investment is suitable to the client's financial situation and consistent with the client's written objectives, mandates, and constraints before making an investment recommendation or taking investment action. -Judge the suitability of investments in the context of the client's total portfolio. -When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make only investment recommendations or take investment actions that are consistent with the stated objectives and constraints of the portfolio.

2.1

When a member feels a law has been broken, the member should seek advice from the firm's counsel. If the member knows a law has been violated, the member should contact a supervisor.

Performance Presentation.

When communicating investment performance information, Members or Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete. -Can give returns gross of fees if explicit

Reference to CFA Institute, the CFA Designation, and the CFA Program

When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, Members and Candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program. **CAN say participation in the CFA Program has enhanced their investment management skills *CAN say I have completed both Level I and Level II of the CFA Program Candidates CAN communicate that they are participating in the CFA Program *cannot say CFA Candidate if not enrolled for an exam. *can't say "CFA, Level I" must say "CFA candidate" *May print business cards with CFA designation before you have a CFA if you don't distribute them to anyone. *Stating an expected date for receipt of the CFA charter is not acceptable *Can only say they scored above or below a 70 on the exam. can't say 100 Reference to CFA Institute, the CFA Designation, and the CFA Program the display of the designation should not be more prominent than her name.

*

When valuing assets, The Asset Manager Code does NOT specify that only one pricing method should be used and multiple methods may be necessary.

Distinct Business Entity

a unit, division, department, or office that is organizationally or functionally separated from other units, divisions, departments, or offices and that retains discretion over the assets it manages and that should have autonomy over the investment decision-making process.

**A firm

an investment firm, subsidiary, or division held out to clients or potential clients as a distinct business entity -if you use a firm for marketing you are part of them -if have a distinct strategy but the same business entity then you ARE part of the firm. -if a distinct business entity CAN claim compliance by yourself