1. The CFA Institute Standards of Practice Handbook
Gallup recently ran a poll of public perceptions associated with honesty and ethical standards across 22 professions: of the two investment-related jobs on the list, bankers fell right in the middle of the pack (11th), while stockbrokers were 19th of the 22 (beating only advertisers, members of congress and car salespeople). If anything, it’s surprising bankers fared as well as they did. But the investment industry needs to be trusted: markets simply don’t work as well if the public cannot trust those who run them.
To be trusted, we need to deserve that trust. First and foremost, this means we need to be an investment profession before we are an investment business. To that end, the CFA Institute has done an outstanding job of keeping ethical standards at the heart of its training. As such, my choice of the #1 must-read book for everyone in the institutional investment world – whether you are pursuing the CFA charterholder designation or not – is the CFA Institute Standards of Practice Handbook. An added bonus: it’s free.
The handbook includes sections on professionalism; integrity of capital markets; duties to clients; duties to employers; investment recommendations and actions; and conflicts of interest. Each area is illustrated with several examples of its application: while many of the examples are ones in which the appropriate course of action (i.e. the right answer if you are sitting the Institute’s test) is obvious, that’s not the case in every instance.
The existence of codes of ethics and professional standards does not, of course, guarantee they will be followed. But they do draw attention to the complexity of the issues and they do create clear lines. In a world where there will always be some grey areas, in which no written code will ever be able to capture the full extent of what it means to act with professional integrity, this handbook provides an objective starting point. That is a valuable thing.
I work for a firm whose stated core values include “we behave with non-negotiable integrity”1. Is that too lofty a claim? Does the statement alone necessarily lead to our living up to that standard? Could it even create a sense of complacency and make us less vigilant? All of those criticisms and more could be made of our value statement. But I love it nonetheless. It marks out an aspiration to do the right thing. And that aspiration is one the whole investment industry can and should share.
Recap: Bob Collie’s top-ten must-read books for institutional investors:
10. Roger Lowenstein (2000). When Genius Failed: The Rise and Fall of Long-Term Capital Management. Random House.
9. Nassim Nicholas Taleb (2007). The Black Swan: The Impact of the Highly Improbable. Random House.
8. Richard H. Thaler and Cass R. Sunstein (2008). Nudge: Improving Decisions about Health, Wealth and Happiness. Yale University Press.
7. Carmen M. Reinhart and Kenneth S. Rogoff (2011) This Time Is Different: Eight Centuries of Financial Folly. Princeton University Press.
6. Peter L. Bernstein (1996). Against the Gods: The Remarkable Story of Risk. John Wiley & Sons.
5. David F. Swensen (2000). Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment. The Free Press
4. Benjamin Graham (1949, fourth revised edition 1973). The Intelligent Investor. HarperCollins.
3. Justin Fox (2009). The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. HarperCollins.
2. Michael Lewis (2010). The Big Short: Inside the Doomsday Machine. W.W. Norton.
1. The CFA Institute (2010). Standards of Practice Handbook, tenth edition.
1The others are “we have a genuine focus on our people, including family, community, and personal goals” and “we strive to exceed client expectations”.