One of the key pillars of the CFA Institute Future of Finance initiative is Putting Investors First. While this concept might seem obvious to CFA® charterholders, the recent financial crisis has underscored the need to restore trust in the investment industry. CFA Institute developed the Statement of Investor Rights as a clearly worded message that encompasses the CFA Institute Code of Ethics and Standards of Professional Conduct.
Put simply, everyone working in the investment industry has a duty to protect investor interests. The Statement of Investor Rights contains ten rights that any investor should expect from financial services professionals.
Who could not agree with the following rights?
When engaging the services of financial professionals and organizations, I have the right to…
Globally, financial laws and regulations differ, but all investors have the right to honesty from financial professionals. Honesty does not just mean a truthful answer to your questions; it also means transparency and forthrightness on the part of the financial professional.
Ideally, the financial professional should give you all the information that affects the financial decisions you make as well as the information that pertains to the financial decisions made on your behalf.
Financial professionals must base decisions on:
As the owner of the money or the assets in a financial transaction, your welfare must be considered before the welfare of the financial professional and his or her organization. It is through outstanding work and service to your interests that financial professionals earn your trust and continued business. Your money is paying the bills and salaries of these professionals, and your interests need to come before their personal interests.
Fair treatment is not always equal treatment, particularly regarding all of a financial professional’s clients. For example, other clients may have different objectives and different risk tolerances, resulting in investment portfolios that are very different from your own. You should not consider it unfair treatment when another client with a riskier portfolio earns higher returns or when another client’s less risky portfolio performs better when financial markets decline.
Fairness also means that you should not feel pressured or rushed to make financial decisions.
Advice from a financial professional should be based solely on the benefits to you, your financial circumstances, and your financial goals; advice should not be based on a financial professional’s personal interests. All financial professionals have an interest in being paid for their work, so you should always ask how the financial professional is paid (e.g., commission, flat fee, etc.) to ensure that his or her personal financial interests are closely aligned with your own.
A financial professional must clearly tell you about any existing or potential conflicts of interest. Because conflicts of interest are not always avoidable, that information must include not only what the conflicts of interest are but also the steps taken to reconcile them in your best interests if they cannot be avoided.
Common examples of potential conflicts of interest include:
Financial professionals must base decisions on facts directly relevant to your financial circumstances, needs, and goals. Financial advice should feel comfortable to you, and if it does not, you have the right to question financial professionals so that you understand how their advice fits you and your circumstances. The best way to make sure that you understand the advice being given to you is for the financial professional to put the plans created for you in writing. This plan is commonly known as the Investment Policy Statement. If you do not have an investment policy statement, ask the financial professional to create one. If you are just starting a relationship with a financial professional, then make sure that you and the financial professional create one together.
To understand the performance of a financial product, whether it is a checking account, life insurance policy, mutual fund, or another product, you must be able to understand the information provided by the financial professional or firm. Thus, you must receive communications — electronic, written, verbal, or otherwise — that make sense to you. If you do not understand the information given to you, you have the right to ask questions, request an explanation, and delay agreeing to the advice until the information is made clear.
You have the right to fully understand the expenses you are paying for investment services and products. This is true even if your financial product is as simple as a checking account. Financial professionals should be able to:
You have the right to privacy of your personal and financial information. Only financial professionals and their staff directly involved in the investment decision-making or reporting processes should have access to your personal and financial information. Furthermore, your personal financial information should be disclosed to others only if it is required by law, such as through a subpoena, or by a regulator with lawful jurisdiction.
Financial professionals working on your behalf must document and make readily available to you: