General obligations and responsibilities of portfolio managers

Recommended reading:  Definition of Portfolio Managers

General obligations and responsibilities of portfolio managers are:

1. Code of Conduct:-

A portfolio manger has to, in the conduct of business; observe high standards of integrity and fairness in all his dealing with his clients and other portfolio managers. The money received by him from a client for an investment purpose should be deployed as soon as possible and money due and payable to a client should be paid forthwith.

A portfolio manager has to render at all times high standards of services, exercise due diligence, ensure proper-care and exercise independent professional judgment. He should either avoid any conflict of interest in his investment or disinvestment decision, or where any conflict of interest arises; ensure fair treatment of all his customers. He must disclose to the client, possible sources of conflict of duties and interest, while providing unbiased services. A portfolio manger should not place his interest above those of his clients.

He should not make any statement or become privy to any act, practice or unfair competition, which i! Likely to be harmful to the interest of other portfolio mangers or is likely to place them in a advantageous position in relation to the portfolio manager himself, while competing for or executing any assignment.

Any exaggerated statement, whether oral or written, should not be made ‘by him to client other about the qualification or the capability to- render certain services or his achievements in regards to services n rendered to the other clients.

At the time of entering into contract, he should been in writing from the clients his interest in various corporate bodies which enable him to obtain unpublished price-sensitive information of the, body corporate.

A portfolio manger should not disclose to any clients or press any confidential information about his clients, which has come in his knowledge.

Where necessary and in the interest of the clients, he should take adequate’ steps for the registration of the transfer of the clients’ securities and for claiming and receiving dividends, interest payment and other right accruing to the client. He must also make necessary action for the conversion of securities and subscription/ renunciation of/or rights in accordance with the clients’ instruction.

  • A portfolio manger has to endeavor to:-

a) Ensure that the investors are provided with true and adequate information without making any misguiding or exaggerated claims and are made aware of attendant risks before any investment decision is taken by them;

b) Render the best possible advice to the client having regards to the client’s needs and the environment and his own professional skills;

c) Ensure that all professional dealing are affected in prompt, efficient and cost effective manager.

  • A portfolio manger should not be party to:-

a) Creation of false market in securities;

b) Price rigging or manipulation of securities;

c) Passing of price sensitive information to brokers, members of the stock COI exchanges and any other intermediaries in the capital market or take any other action which in prejudicial to the interest of the investors. No portfolio manager or any of its directors, partners or managers should either on their respective accounts or through their associates or family members, relatives enter into any transaction in securities of the companies on the basis of published price sensitive information obtained by them during the course of any professional assignment.

  • Contract with Clients:-

Every portfolio manger is required, before taking up an assignment of management of portfolio on behalf of a client, is enter into an agreement with such client clearly defining the inter se relationship, and setting out their mutual rights, liabilities and obligation relating to the management of the portfolio of the client. The contract should, inter alias, contain.

  1. The investment objectives and the services to be provided
  2. Areas of investment and restrictions, if any, imposed by the client with regards to investment in a particular company or industry;
  3. Attendant risks involved in the management of the portfolio;
  4. Period of the contract and provision of early termination, if any;
  5. Amount to be invested;
  6. Procedure of setting the client’s accounts including the form of repayment on maturity or early termination of contract;
  7. Fee payable to the portfolio manger;
  8. Custody of securities.

The funds of all clients must be placed by the portfolio manger in a separates accounts to be maintained by him in a scheduled commercial bank. He can charges an agreed fee from the client for rendering portfolio management services without guaranteeing or assuring, either directly or indirectly, any return and such fee should be independent of the returns to the clients and should not be on return sharing basis.

2. General Responsibilities;-

The discretionary portfolio manager should individually and independently manage the funds of each client in accordance with the need of the client in a manner, which does not partake the character of a mutual fund, whereas the non-discretionary portfolio manager should manage the funds in accordance with the direction of client. He should act in a fiduciary capacity with regard to the client funds and transact in securities in within the limitation placed by the client himself with regard to dealing to securities under the provisions of the reserve bank of India act, 1934. He should not derive any direct or indirect benefit out of the client funds or securities. he cannot pledge or give on loan securities held on behalf of client to a third person, without obtaining a written permission from his client. He should ensure proper timely handling of complaints from his client and take appropriate action immediately.

3. Investment of clients money:-

The portfolio manager should not accept money of securities from his client from his client for a period of less than one year. Any renewal of portfolio funds the maturity of the indicial period is deemed as a fresh placement for a minimum period of one year. The portfolio funds can be withdrawn or taken back by the portfolio client at his risk before the maturity date of the contract under the following circumstances..

  • Voluntary or compulsory termination of portfolio management service by the portfolio manager.
  • Suspension or termination of registration of portfolio manager by the SEBI.
  • Bankruptcy or liquidation in case the portfolio manager is a body corporate.
  • Permanent disability, lunacy or insolvency in case the portfolio manager is an individual.

The portfolio manager can invest funds of his clients in money market instrument or as specified in the contract, but not in bill discounting, bedlam financing or for the purpose of lending or placement with corporate or non-corporate bodies.

While dealing with clients funds, he should not indulge in speculative transaction, that is, not enter into any transaction for the purchase or sale of any securities in which transaction is periodically or ultimately settled otherwise than by actual delivery or transfer of security. He may enter into transaction on behalf of the client for the specific purpose of meeting margin requirements only if the contract so provides and the client is made aware of, the attendant risk of such transaction.

He should ordinarily purchase all sell securities separately for each client. However, in the event of aggregation of purchase or sales for economy of scale, inter se allocation should be done on a pro rata basis and at weighted average price of the days transaction. The portfolio manager should not keep any position open in respect of allocation of sales or purchase affected in a day.

Any transaction of purchase or sale including that between the portfolio managers own account and client accounts or between two clients account should at the prevailing market price. He should segregate each clients fund and portfolio securities and keep them separately from his own funds and securities and be responsible for the safekeeping of clients fund and securities. He may hold the belonging to the portfolio account in his own name on behalf of his client’s only if, the contract so provides and in such an event his record and reports to the client should clearly indicate that the securities are held by him on behalf of the portfolio account.

4. Maintenance of book of accounts / records:

Every portfolio manager must keep am maintain the following book of accounts, records and documents.

  • A copy of balance sheet at the and of each accounting period.
  • A copy of the profit and loss account for each accounting period.
  • A copy of the auditor report on the account for each accounting period.
  • A statement of financial position and
  • Record in support of every investment transaction or recommendation which indicate the data, fact and opinion leading to that investment decision.

After the end of each accounting period, copies of the balance sheet, profit and loss account and such other documents for any other preceding five accounting year when required must be submitted to the SEBI. Half yearly unedited financial result, when required with a view to monitor the capital adequacy have to be submitted to the SEBI the books of account and other record and document must be preserved for a minimum period off five years.

5. Disclosure to SEBI :

A portfolio manager must disclose to SEBI a and when required the following information.

  • Particulars regarding the management  of a portfolio.
  • Any information or particulars previously furnished, which have a bearing on the certificate granted to him.
  • The name of the clients whose portfolio he has managed and

Particulars relating to the capital adequacy requirement.

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  • Ronnie Diener

    Can you please tell me if these are legal responsibilities.