CFA Institute launches trustees code of conduct

Just as corporate directors are meant to look after the best interests of shareholders, pension trustees are supposed to safeguard the interests of beneficiaries.
CFA Institute, a global association for investment professionals, has launched a code of conduct for pension trustees worldwide. The code highlights the trusteesÆ role in safeguarding retirement benefits of individuals at a time when financial markets are becoming increasingly complex and populations in many Asian jurisdictions, including China and Hong Kong, are rapidly ageing.

The CFA Institute Code of Conduct for Members of a Pension Scheme Governing Body highlights the 10 ethical responsibilities pension trustees must uphold in order to properly supervise the funds of scheme members and their beneficiaries. This role is becoming more crucial as Asian governments, facing social-security funding challenges, introduce pension reforms and seek public awareness in favour of voluntary retirement savings, according to CFA Institute.

Pension trustees are individuals serving on the governing body of a pension plan, scheme or fund, whether run by the government or a private business entity. Tasked to ensure that assets grow and membersÆ benefits are secure, trustees are expected to always act in the best interest of members. Their decisions, however, could sometimes be compromised by issues such as conflicts of interest and a lack of knowledge about investment strategies.

ôThe conduct of those who govern pension schemes significantly impacts the lives of millions of people around the world who are dependent on pensions for their retirement income,ö says Jon Stokes, US-based director for standards of practice at the CFA Institute Centre for Financial Market Integrity. ôJust as corporate directors look after the best interests of a companyÆs shareholders, trustees are charged with safeguarding the interests of the participants in and beneficiaries of a pension scheme.ö

In Hong Kong, Stuart Leckie, vice-chairman of the Hong Kong Retirement Schemes Association (HKRSA), says the code will help to raise standards of governance and best practice among pension funds in many jurisdictions.

Based on universal principles and written in jargon-free English, the code is applicable to members of a pension fundÆs governing board, regardless of the type of pension scheme or where the scheme is located or managed.

ôWe have tried our best to make it easy to understand and implement by writing it in simple English, since many individual trustees do not possess legal skills nor professional financial knowledge,ö says Peter Wong, past chairman of the HKRSA.

The HKRSA is one of the six leading global organisations in the working group that CFA Institute consulted with in the process of drafting the code. The others are the Organisation for Economic Cooperation and Development (OECD), the Council of Institutional Investors, the National Association of Pension Funds, the Swiss Association of Pension Funds, and the Dutch Association of Industry-wide Pension Funds.

Juan Yermo, principal administrator of the Private Pensions Unit at the OECD, says the code û which complements the OECD guidelines on pension fund governance û will provide a much needed global template for the industry in terms of how trustees should conduct themselves.

According to the code, pension trustees should:

1. Act in good faith and in the best interest of the scheme participants and beneficiaries.

2. Act with prudence and reasonable care.

3. Act with skill, competence, and diligence.

4. Maintain independence and objectivity by, among other actions, avoiding conflicts of interest, refraining from self-dealing, and refusing any gift that could reasonably be expected to affect their loyalty.

5. Abide by all applicable laws, rules, and regulations, including the terms of the scheme documents.

6. Deal fairly, objectively, and impartially with all participants and beneficiaries.

7. Take actions that are consistent with the established mission of the scheme and the policies that support that mission.

8. Review on a regular basis the efficiency and effectiveness of the schemeÆs success in meeting its goals, including assessing the performance and actions of scheme service providers, such as investment managers, consultants, and actuaries.

9. Maintain confidentiality of scheme, participant, and beneficiary information.

10. Communicate with participants, beneficiaries, and supervisory authorities in a timely, accurate, and transparent manner.
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