An investment wish list dream come true. The Bermuda Monetary Authority, in conjunction with investment business industry leaders, has been extremely focused of late.

They have recently posted their draft recommendations, updates and positive changes to the Bermuda Investment Business Act 2003 in a Consultation Paper entitled General Business Conduct And Practice Code Of Conduct along with a summary Securing Enhanced Protection For Investors Revised Code Of Conduct For Investment Providers 31 March 2010.

The documents are available for public perusal on the Bermuda Monetary Authority website under the main menu, right hand side consultation.

It is probable that most readers will not take the time to review this well-thought out decisively rendered document; just too much like homework. However, I encourage anyone that has investments, or is thinking of investing, or is serious about understanding their pension to at least review the summary of Code of objectives and responsibilities: a) to ensure that an investment provider a) acts with high standards of integrity and fair dealing in the conduct of investment business; and b) acts with due skill, care and diligence in providing the services which it provides.

This collaborative update to the Act is about protecting you, the consumer with comparable information across all investment and pension providers, more transparency, disclosures of conflicts of interest, reporting of returns, gross and net of all fees (commissions, management, and so on), client risk profiling, asset allocation and index matching/tracking of your investments, and most importantly, holding the financial salesperson(s) and the investment provider to a higher standard of client care.

Some of key changes are as follows:

1. Professional Conduct Standards for Investment Providers (and their staff)

Detailed guidance on the level of standards expected is designed to encourage investment providers to conduct business in a professional and ethical manner. The Authority expects an investment provider to comply both with the Code and with accepted industry standards in its dealings with investors.

The serious explanatory document of 45 pages illuminates for both the investment provider and the client (consumer) of financial services just exactly what constitutes professional conduct standards.

a) Keeping the internal affairs of the business in good order. Investment providers are expected to conduct their own affairs in a responsible manner and to comply with regulatory requirements. After all, the consumer feels comfortable and secure in dealing with a well-run ethical efficient investment business.

b) Responsible conduct - Adequately trained, supervised, suitable staff. The Act stops short of defining what suitable and trained means, although there are references throughout to adhering to best industry practices. Currently, Bermuda does not have a defined basic universal individual licensing requirement for staff in the investment industry in order to work and provide financial advice. The investment provider firm holds the investment license. In other jurisdictions, the training and credentials of securities industry staff are heavily regulated. An employee who does not possess the minimum industry standard of a basic securities license is prohibited from even talking to a client if employed in the United States; further, US securities industry personnel are required to have their finger prints on file with the Federal Bureau of Investigation. However, given the guidelines mandated in these proposed revisions, it may possibly mean that there is an implied elevation of professional licensing standards.

c) Employees are required to exhibit responsible behaviour, refrain from undue pressure in selling or misrepresentation, and make their business intentions clear and understandable.

d) Staff supervision procedures and records are to be maintained relating to the experience, training and qualifications of each employee and the categories of transactions that personnel is competent to deal with. This is an important note that essentially assures that a complex investment portfolio, for instance, will be managed by the most competent experienced individuals.

2. Client Relationships

This section has been expanded to provide for better protection of investors by requiring investment providers to create a client risk profile and to provide additional disclosures to clients. The Authority utilised as a reference guide, the standards of one of the most respected investment membership bodies in the world, The CFA Institute - The CFA Asset Manager Code of Professional Conduct. Chartered Financial Analyst Charterholders are highly respected investment industry professionals who are expected to adhere to ethical fiduciary standards of client care. CFA Charterholders earn the right to use the CFA designation after a series of study and exams that can take three years to achieve, along with a period of actual work experience managing portfolios or participating in investment activities.

The client relationships section is very, very detailed. It defines the difference between an execution only client (one who is a self-directed investor) and clients who rely upon the investment provider for help in choosing or managing their investments. Clients must now have a defined risk profile and a written agreement that sets out the scope of the services provided. Investment fees, disclosure of compensation / commissions to a financial representative, performance, track records, suitability and benchmarking etc. are to be discussed in detail with the client and documented in the agreement and reference materials.

3. Portfolio Management

An investment provider shall use reasonable care and judgment to achieve and maintain independence and impartiality in making recommendations or taking investment action. To this extent, an Investment Policy Statement ("IPS") section has been added to the Code. The IPS must be written and must be provided before monies are invested on behalf of the investor. Specific information on matters such as asset allocation, risk tolerance and liquidity requirements should also be included in an IPS.

4. Conflicts of interest

Investment providers must be in a position to identify when conflicts of interest arise and

ensure that information is properly communicated to clients. The Investment Provider

must not undertake or recommend an investment transaction in which it has material

interest without the prior knowledge of the client.

5. Templates

And last but not least, sample disclosure templates have been added to the Code to provide greater consistency across the industry. These templates provide a prescriptive guideline for the receipt and dissemination of information between the client and investment provider.

Additionally, a Terms of Business Document is aimed at empowering clients with information that will assist them in making more informed investment decisions. It includes information relating to the ownership of the investment provider, products, services, and fees charged. These disclosures form the basis of ethical and professional conduct.

The Bermuda Monetary Authority's power to issue a code of conduct is contained in Section 10 of the Investment Business Act 2003.

The purpose of such a code is to establish duties, requirements and standards with which all holders of investment business licenses granted under section 17 or issued under section 87(2) of the Investment Business Act 2003 must comply. The Authority shall take into account failure to comply with the provisions of the Code in determining whether an investment provider's business is being conducted in a prudent manner, as required by paragraph 5 of the minimum licensing criteria.

This is a snapshot of some of the draft upgrades to the Act. A further article will explore the detail relative to Investment Policy Statements, fees and commissions, integrity and fair dealing, conflicts of interest, leverage and margins demonstrated using a few composite client cases.

The Bermuda Monetary Authority is serious about protecting the rights of the investment client and committed to maintaining the integrity of Bermuda as an international finance centre. This is a good thing.

Martha Harris Myron, CPA, CFP(US) TEP(UK) JP- Bermuda is an international Certified Financial Planner™ practitioner in private wealth management. She specialises in independent fee-only cross border investment, tax, estate, and strategic retirement planning services for Bermuda residents with cross-border and multi-national connections, internationally mobile people and US citizens living abroad. For more information, contact martha.myron@gmail.com or Patterson Partners Ltd 296 3528.