Lesson 9 of 9 · All lessons in this module
  1. Standard III(A)–(B): Loyalty, Prudence, Care and Fair DealingVideo lesson
  2. Standard III(A) cases: client identity, loyalty and brokerage
  3. Standard III(B) cases: dissemination, allocation and priority
  4. Standard III(C)–(E): Suitability, Performance Presentation and ConfidentialityVideo lesson
  5. Standard III(C) cases: IPS, total portfolio and mandates
  6. Standard III(D) cases: fair, accurate and complete performance
  7. Standard III(E) cases: exceptions, channels and firm limits
  8. Standard III(E) cases: vulnerable investors and cooperation
  9. Standard III(A) and (C) cases: ESG constraints and updated wording

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Lesson 9 of 9 · 13 min

Standard III(A) and (C) cases: ESG constraints and updated wording

A client's ESG framework is part of the IPS and binds the manager, ESG factors may be added to suitability when they fit the IPS, and the definitions of client and prospective client are explicit.

In short

  • An IPS may contain unique constraints or preferences such as an ESG framework: constraint (7), preferences, prohibitions and unique needs, names it directly.
  • ESG concerns can grow in importance after the first IPS; the review (at least annually) is where the IPS is updated to reflect them.
  • Clients that are charities or pursue ESG goals may set strict policies limiting investments; managers must follow client guidelines, and trustees must make sure they are followed.
  • Using ESG criteria as additional factors is permitted when the investment still suits the IPS objectives; it is a suitability factor, not a violation.
  • A client is a person or entity for which the member performs a professional service of a kind usually given for compensation; a prospective client has shown interest or is actively solicited and could become a client.
  • For an unsolicited unsuitable trade, require the client's acknowledgment of the discussion and that the trade is against your advice because it is unsuitable.

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