Compliance: The supervisor and the compliance officer should:

Disseminate the compliance procedures.

Update the procedures as necessary.

Educate the staff and issue periodic reminders.

Incorporate a professional conduct evaluation into the employee’s performance review.

Review employee actions to ensure compliance and identify violators, initiating procedures once a violation has occurred. A supervisor should respond promptly to the violation by conducting a thorough investigation, and placing limitations on the wrongdoer until the investigation is complete.

2-IV.: Standards of Professional Conduct: IV. Relationships with and Responsibilities to Clients and Prospects

A.: The Investment Process

IV(A.1) Reasonable Basis and Representations. Members shall:

Exercise diligence and thoroughness in making investment recommendations or in taking investment actions.

Have a reasonable and adequate basis, supported by appropriate research and investigation, for such recommendations or actions.

Make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation.

Maintain appropriate records to support the reasonableness of such recommendations or actions.

Compliance:

Analyze the investment’s basic characteristics (records must show the characteristics of the investment and the basis for the recommendation).

Analyze the needs of the portfolio (includes the client’s needs, as well as the needs of the total portfolio).

Maintain files to support investment recommendations.

IV(A.2) Research Reports. Members shall:

Use reasonable judgment regarding the inclusion or exclusion of relevant factors in research reports.

Distinguish between facts and opinions in research reports.

Indicate the basic characteristics of the investment involved when preparing for public distribution a research report that is not directly related to a specific portfolio or client.

Compliance: Members should consider including the following information in research reports:

Expected annual rates of return, calculated on a total return basis.

Annual income expectations.

Current rate of return or yield.

The degree of uncertainty associated with the cash flows, and other risk factors.

The investment’s marketability or liquidity.

IV(A.3) Independence and Objectivity. Members shall use reasonable care and judgment to achieve and maintain independence and objectivity in making investment recommendations or taking investment actions.

Compliance:

Protect integrity of opinions. Reports should reflect the analyst’s unbiased opinion.

Disclose all corporate relationships (i.e., directorships, underwriting arrangements or acting as a market maker).

Disclose personal holdings and beneficial ownerships.

Create a restricted list.

Restrict special cost arrangements. Members should pay for their commercial transportation and hotel charges.

Limit gifts (US$100 is the maximum acceptable value for a gift or gratuity).

Restrict investments (strict limits should be imposed on private placements).

Review procedures (supervise the personal investment activities of the employees).

B.: Interactions with Clients and Prospects

IV(B.1) Fiduciary Duties: In relationships with clients, members shall use particular care in determining applicable fiduciary duty and shall comply with such duty as to those persons and interests to whom the duty is owed. Members must act for the benefit of their clients and place their clients' interests before their own.

Compliance:

Follow all applicable rules and laws.

Establish the investment objectives of the client.

Diversify.

Deal fairly with all clients with respect to investment actions.

Disclose all possible conflicts of interest.

Disclose compensation arrangements.

Preserve the confidentiality of client information.

Maintain loyalty to the plan beneficiaries.

IV(B.2) Portfolio Investment Recommendations and Actions: Members shall:

Make a reasonable inquiry into a client's financial situation, investment experience, and investment objectives prior to making any investment recommendations and shall update this information as necessary, but no less frequently than annually, to allow the members to adjust their investment recommendations to reflect changed circumstances.

Consider the appropriateness and suitability of investment recommendations or actions for each portfolio or client (including the needs and circumstances of the portfolio or client, the basic characteristics of the investment involved, and the basic characteristics of the total portfolio).

Distinguish between facts and opinions in presenting recommendations.

Disclose to clients and prospects the basic format and general principles of the investment processes by which securities are selected and portfolios are constructed and shall promptly disclose to clients and prospects any changes that might significantly affect those processes.

Compliance: Know basic nature of your client; know objectives and constraints.

IV(B.3) Fair Dealing: Members shall deal fairly and objectively with all clients and prospects when disseminating investment recommendations, disseminating material changes in prior investment recommendations, and taking investment action.

Compliance:

Limit the number of people privy to recommendations and changes.

Shorten the time frame between initiation and dissemination.

Publish personnel guidelines for pre-dissemination.

Simultaneous dissemination.

Establish rules about employee trading activities.

Establish procedures for determining material changes.

Maintain a list of clients and their holdings.

Develop trade allocation procedures.

Make sure one account is not being used to bail out other accounts.

If the firm offers differing levels of service, this fact should be disclosed to all clients.

IV(B.4) Priority of Transactions: Clients and employers shall have priority over transactions in securities or other investments of which a member is the beneficial owner so that such personal transactions do not operate adversely to their clients' or employer's interests. If members make a recommendation regarding the purchase or sale of a security or other investment, they shall give their clients and employer adequate opportunity to act on the recommendation before acting on their own behalf.

Compliance:

Define personal transactions.

Define covered investments.

Limit the number of access persons. “Fire Walls” should be built to prevent the flow of information from one group or department to other groups within the firm.

Define prohibited transactions. The text specifically mentions equity based IPOs.

Establish reporting procedures and prior-clearance requirements.

Ensure that procedures will be enforced and establish disciplinary procedures.

IV(B.5) Preservation of Confidentiality: Members shall preserve the confidentiality of information communicated by clients, prospects, or employers concerning matters within the scope of the client-member, prospect-member, or employer-member relationship unless the member receives information concerning illegal activities on the part of the client, prospect, or employer.

Compliance: The simplest and most effective way to comply is to avoid discussing any information received from a client except to colleagues working on the same project.

IV(B.6) Prohibition against Misrepresentation: Members shall not make any statements, orally or in writing that misrepresent:

the services that they or their firms are capable of performing.

their qualifications or the qualifications of their firm.

the member's academic or professional credentials.

Members shall not make or imply, orally or in writing, any assurances or guarantees regarding any investment except to communicate accurate information regarding the terms of the investment instrument and the issuer's obligations under the instrument.

Compliance: Firms can provide guidance to employees who make written or oral presentations to clients or prospects by providing a written list of the firm’s available services and a description of the firm’s qualifications.

IV(B.7) Disclosure of Conflicts to Clients and Prospects: Members shall disclose to their clients and prospects all matters, including beneficial ownership of securities or other investments, that reasonably could be expected to impair the member's ability to make unbiased and objective recommendations.

Compliance: Members should report to their employers, clients, and prospects any material beneficial interest they may have in securities, corporate directorships, or other special relationships they may have with the companies they are recommending. Members should make the disclosures before they make any recommendations or take any investment actions regarding these investments.

IV(B.8) Disclosure of Referral Fees: Members shall disclose to clients and prospects any consideration or benefit received by the member or delivered to others for the recommendation of any services to the client or prospect.