IFSA raises its own ethical standards

In previousMoney Managementcolumns, readers have been alerted to one of IFSA’s major projects - the development of an industry code of ethics and associated practice standards and guidance notes. These were launched at the IFSA Conference 99 in Melbourne earlier this week.

Self-imposed standards are not new to this industry. IFSA's predecessor organisations (AIMA, IFA, LISA) bequeathed it, with about 25 standards and guidelines.

The IFSA charter also incorporates the development of ethical and efficient industry practices. Therefore, IFSA and its members have actively engaged in developing a code of ethics and code of conduct. This code will be the overarching policy document for the various industry standards and guidelines that will be progressively rolled out during the next six months.

What then does the code of conduct mean for IFSA members, as well as their clients and customers? First and foremost, it sets out the fundamental principles which should govern IFSA member conduct.

IFSA members should act in the interests of their clients and in accordance with good corporate governance and observe honesty and sincerity. Conflicts of interest should be avoided and confidences should be maintained unless there is legal or regulatory requirement to do otherwise.

There is also a requirement for IFSA members to act in accordance with IFSA standards, to perform duties with competence and due care, and behave ethically so as to uphold the good reputation of the industry.

A framework for standards and guidance notes

The code then establishes the framework for developing and setting industry standards. This should assist in ensuring that no particular level of management or sector of the IFSA membership dominates the standard setting and adoption process.

Standards only deserve such a description if there is some means of monitoring compliance. Under the IFSA code of ethics, each member company affected by the particular standard will be required to pass a resolution each year stating that, to the best of their knowledge, they have complied. If unable to make this statement they will be required to furnish reasons for non-compliance.

The code then proceeds to set out the disciplinary actions available to the IFSA board should there be a proven breach of the code of conduct. The sanctions include private and public censure, suspension from the association and expulsion. In the interests of natural justice there are provisions for appeal against these actions, along with a special provision for reinstatement.

Performance measurement

One of the key standards IFSA has adopted is a performance measurement standard which will be known as theProduct performance - calculation and presentation of returns standard. This will fill the void in relation to comparability of performance returns for retail investors.

Wholesale investors have been well-served by the now well known AIPMPS (Australian Investment Performance Measurement and Presentation Standards), developed by the P-Group, which is the foundation for building a retail standard on performance measurement.

This retail standard will be progressively implemented so as to allow IFSA members time to complete system changes that are required in moving to hard prices.

Takeover terms for group life cover

Another guidance note that warrants special recognition in this column is theGroup insurance takeover terms guidance note. This provides IFSA members with an agreed practice for when life insurance cover, for groups of employees in a superannuation fund, are being transferred between insurers. It also specifies when an incoming insurer becomes responsible for claims and the acceptance terms on which it takes over the cover. This will ensure that claimants never fall between the cracks and that their claims are efficiently and speedily resolved.

Other standards

Other key standards and guidance notes which have been updated and re-released are related party transactions, management expense ratios, scheme pricing, valuation of scheme assets, guidelines for advertising, investor reporting, and financial reporting.

Additionally, the guidance note on corporate governance (otherwise known in the market as theBlue Book) has been updated to reflect both current best international practice as well as the recent changes to the corporations law and ASX listing rules.

The very substantial headway IFSA has made on raising the standard during the past year has been achieved by a dedicated group of IFSA members who have both worked diligently and maintained their enthusiasm throughout this enormous task.

IFSA and its members are indebted to the work of this team and to the efforts of KPMG, consultant to the project, in particular Chris Hall, Tracey Toland and Genevieve Elliott.

<I>Richard Gilbert is the deputy chief executive officer of the Investment and Financial Services Association.