Regulations
Professional and institutional investors are constrained by regulations. First and foremost is
the prudent investor rule. That is, professional investors who manage other people’s money
have a fiduciary responsibility to restrict investment to assets that would have been approved
by a prudent investor. The law is purposefully nonspecific. The asset manager must stand
liquidity
The speed and ease with
which an asset can be converted to cash.
1 In many cases, it is impossible to know the liquidity of an asset with certainty until it is put up for sale. In more
active markets, however, the liquidity of the traded assets can be observed from the bid–ask spread, that is, the difference between the “bid” quote (the lower price available when someone wishes to sell an asset) and the “ask” quote
(the higher price a buyer would have to pay to acquire the asset).
investment horizon
The planned liquidation date
of the portfolio.
prudent investor rule
The fiduciary responsibility of
a professional investor.
Final PDF to printer698 Part SIX Active Investment Management
bod72160ch22689-711.indd 698 07/25/20 07:07 PM
ready to defend an investment policy in a court of law, and interpretation may differ according
to the standards of the times.
Registered investment advisors working directly for individuals or institutional clients such
as pension funds are bound by a fiduciary standard, meaning that they are required to work
in the best interests of their clients; specifically, they must place their clients’ interests above
their own. The fiduciary standard is meant to reduce conflicts of interest between advisers and
clients. In contrast, brokers or advisors working for a broker-dealer firm were traditionally subject to a lower standard of suitability, meaning that their investment recommendations need to
be acceptable, but not necessarily the best choice for the client. For example, a client’s money
might have been placed in a “suitable” mutual fund even if similar, cheaper funds (with nearly
identical investment profiles but offering the broker lower sales commissions) were available.
The SEC’s Regulation Best Interest, adopted in 2019, attempts to improve on the suitability
standard by directing brokers to disclose conflicts of interest arising from their compensation
packages and give greater consideration to clients’ rather than their own interests. Critics of
the new regulation argue that it is too vague about how brokers are to avoid decisions driven by
personal considerations, and whether the disclosure of potential conflicts will be sufficiently
transparent and easy for clients to understand. While they might sound synonymous, “best
interest” standards are not as rigorous as “fiduciary” standards, and the onus is on investors
to understand the obligations and potential conflicts of any particular financial representative.
Also, specific regulations apply to various institutional investors. For instance, U.S. mutual
funds are subject to regulations that put upper bounds on the allowed use of leverage or investments in illiquid securities and lower bounds on some measures of diversification.
Sometimes, “self-imposed” regulations also affect the investment choice. We have noted
several times, for example, that mutual funds describe their investment policies in a prospectus.
These policy guidelines amount to constraints on the ability to choose portfolios freely.
概括
专业和机构投资者受到法规约束，首要的是谨慎投资者规则，即管理他人资金的专业投资者有受托责任，将投资限制在谨慎投资者认可的资产范围内。该法律故意不具体，资产管理人需能在法庭上为投资政策辩护，且解释可能因时代标准而异。直接为个人或养老基金等机构客户服务的注册投资顾问受受托标准约束，必须将客户利益置于自身之上，以减少利益冲突。而经纪商或顾问传统上适用较低的适宜性标准，只需推荐可接受的投资，未必是最佳选择。2019年通过的SEC《最佳利益规定》试图改进适宜性标准，要求经纪商披露薪酬引发的利益冲突并更多考虑客户利益，但批评者认为其避免个人利益驱动决策和披露透明度方面模糊不清。此外，特定法规适用于各类机构投资者，如美国共同基金在杠杆、非流动性证券投资及多样化方面有上限或下限限制。有时”自我约束”的法规也影响投资选择，如共同基金在招股说明书中描述的投资政策限制了自由选择投资组合的能力。
