How the crisis brought a fresh set of challenges for our Codes & Standards

Thursday 14 May 2020

CFA UK Insights

Author: Andy Burton, Professionalism Advisor, CFA UK

For a few weeks in late February the Covid-19 crisis was a storm in a tea-cup, which markets were quietly resisting. Two months on and the world is upside-down and CFA charterholders face challenges like they have never seen before.

The question is how are they staying true to their duty to adhere to the CFA Codes & Standards? Andy Burton, Professionalism Advisor at CFA UK asks volunteers from the CFA UK’s Professionalism Steering Committee about how the standards are helping them through these unprecedented times.


Standard in Focus: Duty to Clients (III) Loyalty, Prudence & Care (A) – Real Estate

Real estate funds across Europe have faced several challenges as a result of the coronavirus pandemic.  Leading valuers have instituted the ‘material uncertainty’ clause, causing a number of real estate funds to be suspended from trading as their valuations are in doubt.  Government restrictions also mean many properties can no longer be operated from, so challenging many tenant’s ability or willingness to pay their rent. Lastly, valuers and investors are no longer in a position to physically inspect properties, as a result due diligence is much harder to perform and so sales volumes have decreased further.


Clement Lasnier, CFA

Clement Lasnier, CFA
Investment Oversight Manager, Real Assets, Aviva Investors

Communication with clients and stakeholders has been key to navigate through the first few weeks of the coronavirus crisis. We have had to increase client engagement to work through this extraordinary situation together. It is incredibly important that clients are updated in a timely and thorough way.

Fund managers are constantly reviewing the repercussions the Covid-19 may have on their portfolio and making a fresh assessment of each asset’s prospects in the light of this new environment. It is fair to say that the impact across real assets varies - we have seen divergences across specific asset classes but also within the same asset class - highlighting the importance of diversification in this sector and a clear communication with investors.

From a relationship management point of view, real estate managers are also increasing their engagement with tenants, with heightened oversight and governance of the new risks arising from this crisis.

Industry bodies also have an important role to play in developing common, best practices. For example, how to structure and organise client reporting in these exceptional circumstances by providing consistent information and transparency to investors and stakeholders.

Lasnier sits on CFA UK Professionalism Steering Committee.


Standard in Focus: Duty to Clients (III) Suitability (C) - FinTech

The coronavirus has over-turned many people’s financial situation within the space of 1-2 weeks.  Most have seen a significant drop in the value of their pensions and investments whilst some have lost their source of employment, been forced to close their business or even suffered the bereavement of a partner to the disease.

In such situations, financial advice needs to take account of clients’ changing circumstances and risk appetite.  While a few clients might have been able to increase their risk profile to take advantage of market distortions, most clients would have needed to reduce their risk appetite, in some cases severely, necessitating a financial planning overhaul.


Suzanne Hsu, CFA

Suzanne Hsu, CFA
Advisor to the CEO, Project Imagine

On the one hand, we needed our clients to reconsider their risk appetite and investment policy in light of changes in their income and liquidity and changes in the market and credit risk of their investments. On the other hand, we were concerned that our inexperienced retail investors would panic and flee to cash at exactly the wrong time.

Our goal, since the beginning of the company, has been to give clients the financial tools and financial products they need, explained in unintimidating, user-friendly language. We explained how they should re-evaluate their investment plan in light of changes in their circumstances, but that in past market falls, investors who had moved to cash completely after market falls often missed the subsequent recovery. We are also looking into ways to offer capital-protected structured products to offer our clients a way to limit downside exposure while retaining some upside potential.

Hsu is a member of CFA UK Professionalism Steering Committee and has led CFA UK consultation responses to the FCA on Investment Platforms and Open Finance.


Standard in Focus: Duties to Employers (IV) Responsibilities of Supervisors (C) – Venture Capital & Social Impact Investing

The CV-19 pandemic forced most major economies into lock-down mandating that all workers that can work at home should do so.  As a consequence, many investment professionals find themselves solely working from home - bringing the new practical reality of remote working to the entire relationship between supervisors and their staff as well as between board members.


Ian McLennan, CFA

Ian McLennan, CFA
Partner at Triple Investment Management LLP

Well, fortunately we upgraded our IT capacity in February and early March as the risk from Covid-19 started to grow, increasing our server capacity and ensuring that all staff that needed laptops and screens at home were equipped with them. Working-from-home, I have been able to stay in touch with my team and fellow partners over the usual digital channels: email, Teams, Zoom, WhatsApp etc.

My team have video meetings twice a week both to ensure that we are all kept abreast of what everyone is working on, but also to take decisions and just to keep up that little bit of human contact that can be missing with home working. We also ‘chat’ over the apps each day. The team have used email and phone to keep in regular contact with how our portfolio companies are managing the crisis and I have attended numerous fund-level and portfolio company board meetings over a variety of digital apps.

At the wider company level at Triple Point, we have weekly virtual management information sharing meetings, and we now receive weekly (rather than just monthly) financial information about how our own business is doing as well as how portfolios are performing. Our monthly group risks meetings has also moved onto Teams. Approvals processes (e.g. for new investments, cash movements, expenses etc) have always tended to be over email or in minuted group meetings, so that has all transitioned smoothly to working-from-home.

McLennan is leading a CFA UK working group looking at Negative Rates and how Covid-19 will impact rates going forward.


Standard in Focus: Investment Analysis, Recommendations and Actions (V) Diligence & Reasonable Basis (A) – CleanTech Research

The utility and clean-tech sector is not the most heavily affected by the coronavirus, but nevertheless equity prices fell by 10-20% peak-to-trough but nevertheless their operating environment and the demand and, in some cases supply, profile changed dramatically.


Adam Forsyth, FSIP

Adam Forsyth, FSIP
Head of Research, Longspur Research

In some ways this is not too different from looking at a tech company (when will you break even, what is cash burn until then and how much cash do you have now) but with additional coronavirus-related specifics thrown in.  My quick framework looked at four areas – employee health/well-being; external factors; internal operations and financial resources and I encouraged my issuer clients to consider disclosures to meet these basic information requirements for analysts. Fortunately they are already ahead of me on this:  

First, is the company putting the health of its employees and the provision of essential services before anything else? (A company could really damage its reputation if not);

Second, how is demand impacted? And has the supply chain been disrupted;

Third, are there any other ‘internal’ operational impacts (can staff work remotely etc);

Fourth, turning to the financials, what is the cash-burn during the crisis (£/month seems to be the best measure of this) and what is cash position going into it?  What is the availability of other short-term financial support such as credit lines, government schemes etc?

I wouldn’t necessarily expect to get answers to all of these but like all analysts will just make my own assumptions where there is no answer.

Forsyth is currently leading our volunteer working group to the FCA’s consultation on Climate Change Disclosure Reporting and also a member of CFA UK Energy Finance Special Interest Group.


Standard in Focus: Investment Analysis, Recommendations and Actions (V) Communication with Clients & Prospective Clients (B) – Relationship Management

The market turmoil of the last few months presented Joe with challenging circumstances.  Scientists’ understanding of the Covid-19 virus was developing by the hour, its impact on businesses was unfolding quickly but at different rates across the globe and market prices were exhibiting extreme volatility.  Meanwhile crisis headlines were resounding in the media.


Joe Steidl, CFA

Joe Steidl, CFA
Director, Research Afiliates

I would imagine for parts of the investment industry that use discretion in their investment process, this would have been tough to keep on top of. At Research Affiliates, we specialize in systematic rules-based strategies, which are underpinned by academic and empirical research.

Our research insights drive the evolution of our investment strategies and is over a longer time horizon. As a result, we are hard-coded to avoid any temptation to diverge from our investment philosophy during crisis periods. Because of this, our analysis, messaging or communications to clients and prospects stays pretty consistent. Being evidence based, we naturally prefer to rely on what the research says to provide context for clients rather than form opinions.

From my job perspective, I find that refreshing clients on the research and underlying philosophy is helpful for them as a reminder of why they adopted the strategy in the first place. Our strategies are designed to be quite transparent and that has also helped investors to better understand when to expect headwinds or tailwinds. That has made my job a lot easier although I sometimes feel like a broken record.

Steidl was a member of CFA UK ‘Value for Money’ working group that produced this report in 2018.


Standard in Focus: Investment Analysis, Recommendations and Actions (V) Record Retention (C) – Private Banking

The coronavirus has brought about dramatic financial, social and economic change as well as severe market volatility. These changes can force a reassessment of clients’ risk appetite and investment goals.


Francisca van Dijken, CFA

Francisca van Dijken, CFA
Team Leader, Barclays private Bank

Private banking relationships are long-term relationships and the industry has greatly moved from day trading, short-term gains in favour of a longer-term approach through economic cycles and structural themes.

The onset of a private banking relationship is rigorous and in depth: great attention is given to the clients’ capacity for risk (how much can you afford to lose) and also the emotional impact of volatility for each individual. Risk profiles are set-up taking into account both of these dimensions; investment recommendations must be aligned with this information to be suitable. The rationale and the risks of any investment advice are therefore documented, sent to clients in written form and retained on file. This is then verified independently.

Private banks are mainly in the business of capital protection and diversification. When clients wish to take bolder views, their knowledge and experience are assessed and documented, to ensure their ability to assess risk every step of the way at all times. Many of our private bank clients have a high capacity for risk, yet confronted with the sharp Covid-19 market correction, some did wish to reduce the risk of the portfolios and increase their cash allocation. However, some also saw the volatility as an opportunity, market lows as entry points and used leverage to increase exposure.

It is early days to assess the full impact of the crisis, but some of our clients are already facing challenges in their own businesses and their portfolio companies. A change in their circumstances will trigger a suitability review, otherwise done once a year, with a possible impact on the investment strategy - whether that is an increased need for liquidity or shortened time horizon. Once more, any recommendation is discussed in detail with the clients, highlighting rationale and risks, sent in written form and kept on file.

Van Dijkenis part of the CFA UK Mentoring Volunteer Working Group.







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