[15248]
October 8, 2002
TO: SEC RULES COMMITTEE No. 81-02
INVESTMENT ADVISERS COMMITTEE No. 21-02
COMPLIANCE ADVISORY COMMITTEE No. 85-02
RE: DRAFT INSTITUTE COMMENT LETTER ON PROPOSED AIMR RESEARCH
OBJECTIVITY STANDARDS
As we previously informed you,1 the Association for Investment Management and
Research (“AIMR”) has published for comment proposed Research Objectivity Standards
(“Standards”). The Institute has prepared a draft comment letter (attached) on the Standards,
the most significant aspects of which are summarized below.
Comments on the Standards must be received by AIMR no later than October 17,
2002. We have scheduled a conference call for Thursday, October 10, at 11:00 am Eastern to
discuss the Institute’s comment letter. The dial in number for the call will be 888-220-3091
and the pass code for the call will be AIMR/Ari Burstein. If you would like to participate on
the call, please contact Monica Carter Johnson by phone at 202-326-5823 or by e-mail at
mcarter@ici.org.
The draft letter states that while the Institute generally supports the objectives of the
Standards, i.e., to achieve independence and objectivity of research, we strongly oppose the
application of the Standards to investment management firms. The draft letter notes that
investment management firms are subject to comprehensive federal securities laws and that
such firms already have stringent internal procedures in place to address conflicts of interest.
Moreover, the draft letter states that whatever potential conflicts of interest may exist relating to
investment management firms and research are greatly attenuated as compared to those
presented by sellside firms and that we are not aware of any reported cases of abuse in this area
involving investment management firms. Finally, the draft letter states that the proposed
Standards would create significant compliance burdens for firms, the costs of which would
outweigh the benefits.
The draft letter also contains specific comments on the proposed Standards. As a
preliminary matter, the draft letter states that many of the definitions contained in the proposed
1 Memorandum to SEC Rules Committee No. 62-02, Investment Advisers Committee No. 14-02 and Compliance
Advisory Committee No. 53-02, dated July 26, 2002.
2
Standards, such as the definitions of “research analyst” and “research report,” are ambiguous
and/or overly broad. The letter therefore recommends that AIMR revise these terms to be
consistent with the definitions in the recently adopted NASD rule relating to analyst conflicts of
interest (which excluded most investment management personnel). The letter also recommends
that AIMR clarify that the term “recommendation” will be interpreted in a manner consistent
with how NASD Regulation has defined this term in the past.
The draft letter also expresses several concerns regarding the scope of the Standard that
would require firms that permit covered employees to present and discuss research and
recommendations in “public appearances” to require these employees to fully disclose personal
and firm conflicts of interest to the audience. The draft letter states that if AIMR determines
that this Standard should apply to investment management firms, the better approach would be
to formulate this Standard referring to a “research analyst” presenting a “research report”
during a public appearance, using the definitions of these terms as adopted by the NASD.
The draft letter also states that, given existing federal securities law requirements, as
well as the stringent internal policies and procedures that investment management firms have
in place relating to the personal investment and trading activities of investment management
personnel, the Standard containing several requirements relating to a covered employees’
personal investments and trading activities is unnecessary. Specifically, the letter notes that
funds must adhere to Rule 17j-1 under the Investment Company Act. The letter also notes that
substantially all funds groups have adopted the recommendations in the Institute’s Report of the
Advisory Group on Personal Investing addressing the personal investment and trading activities of
investment personnel. The draft letter therefore states that if AIMR determines that this
Standard is necessary, AIMR should revise the Standard and follow an approach similar to that
used in Rule 17j-1 to determine the scope of the Standard.
Finally, the draft letter states that the Standard’s recommended disclosures are
unnecessary inasmuch as registered investment advisers are already subject to similar, and in
some cases more extensive, disclosure requirements under the Investment Advisers Act. The
letter also notes that the recommended disclosures are vague and may raise confidentiality
concerns for investment management firms. For example, it is unclear whether the Standards’
disclosure requirements would be satisfied by a general description of a firm’s conflicts of
interest or if specific disclosure of each conflict of interest is required. The draft letter therefore
states that the better approach would be for the Standards to make a strong affirmation of a
firm’s obligations to adhere to all applicable disclosure requirements of the SEC and other
regulatory bodies. At a minimum, the draft letter recommends that AIMR not require the
disclosure of the specific conflicts of interest to which the firm or its covered employees are
subject, but instead only require a general statement about the conflicts.
Ari Burstein
Associate Counsel
Attachment (in .pdf format)