Active decisions made by asset managers in the creation and maintenance of index-based products should be clear to investors. And the CFA Institute has developed a framework to help.
With innovations such as smart beta ETFs and direct indexing, the investment classification framework and policy recommendations for regulators and firms are designed to improve transparency, communication, and investor comprehension.
Under the framework, index-based strategies are explained to investors according to their level of active decision-making and indexing is on a spectrum beyond traditional market cap weighting, based on three dimensions of strategy, sources of returns, and level of discretion.
Rhodri Preece, CFA, senior head of research, CFA Institute, said that the notion of a simple bifurcation between active and passive investment products is outdated.
“Index-based strategies are varied in their design features and involve different layers of active decision-making, dispelling the historical distinction between active and passive management,” he said. “As index-based products have proliferated, incorporating more complex features than market capitalization weighting, there is a need for greater transparency and improved investor comprehension of these strategies. This new framework intends to support investment advisers and end-investors through clearer disclosure and communication of the key features of index-based products.”
With improving disclosures for investors as a focus, the recommendations for investment firms include:
The framework and recommendations are available on the CFA Institute website.
Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.
From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.
"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.
Chair also praised the passage of stablecoin legislation this week.
Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
