Bridge over ocean
29 October 2019 Issue Brief

Investment Management Governance

Investment managers owe their duty of loyalty to the investors in the fund: their clients. The interests of those clients must always come first, and the competing interests of the firm or other entities will always be secondary to serving the client.

A good investment fund board is characterized by independence, transparency, and a focus on the primacy of client interests. The well-managed board will ensure the appropriate organizational structure and supervision − including the independence of fund managers from other areas of the firm − to prevent any conflicts of interest.

Board Independence

A fund board should be composed of at least a majority of independent board members acting independently from the management of the fund. An independent board is necessary to protect the interests of investors and mitigate any conflicts of interest that may arise between investment managers and fund investors in the operations of the fund. Board independence helps uphold the primacy of client interests over those of the investment manager.

CFA Institute Viewpoint

Independent Review Committee

An Independent Review Committee owes a fiduciary duty to fund investors when making recommendations to those charged with governance of the fund. An Independent Review Committee, through issuing recommendations that uphold the interests of fund investors, strengthens the independence and accountability of the board and helps mitigate any conflicts of interest. An Independent Review Committee contributes to a robust governance framework.


Transparency is a cornerstone of good governance. Investment management companies should make clear, prominent, and complete disclosures to fund investors of all fees and other expenses that may reasonably affect fund investors. Such information should be detailed in the fund prospectus together with any summary documents so that investors are provided with the information they need to evaluate the suitability of a given product.

Market Timing

Market timing is the practice of trading into and out of mutual fund shares to take advantage of delays in the valuation of fund shares relative to changes in value of the underlying securities. Mutual funds are typically valued at a single point in time on each valuation day. Client subscription or redemption orders received after the valuation point on that day can only be executed at the price prevailing at the subsequent valuation point.

This delay may benefit certain investors who are permitted to engage in such activities. However, long-term investors, who are the primary holders of mutual fund shares, may suffer diminished returns from the additional transaction costs arising through portfolio churn from market timing activities.

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