How asset managers can sustain ongoing adherence to the Asset Manager Code through systematic internal and external reviews, feedback loops, and continuous improvements.
I remember sitting down with a friend who was new to compliance at a small asset management firm. She was a little nervous about launching a “Periodic Review” process—she had so many questions. Where to start? How often to review everything? What if they missed something? You know, the usual anxieties. That conversation led me to realize how central and, frankly, how reassuring a structured review process can be for ethical compliance. Conducting periodic reviews is like giving your firm a regular health check. If you do them well, you get clarity on where your compliance posture stands, what needs fine-tuning, and how you can stay on track with all relevant regulations—especially under the Asset Manager Code (AMC).
These reviews aren’t simply “nice to do.” They’re crucial for continuously aligning management practices with the standards outlined in the AMC. This includes making sure you’re hitting all the key points involving client interests, transparency, risk controls, and everything else that keeps your firm’s ethical engines running smoothly. Let’s explore how to plan and execute these reviews, plus we’ll look at ways to involve both internal and external stakeholders, and how to maintain an ongoing improvement loop.
Periodic reviews are designed to promote consistency and continuous compliance. The AMC offers a robust framework to guide managers toward ethical, transparent, and client-focused behavior. But even the best policies and procedures can become stale if they’re left unexamined. Markets evolve, client requirements shift, and the regulatory environment changes.
• Avoiding complacency: A well-run periodic review ensures that your firm doesn’t just assume everything is fine.
• Capturing changes over time: Business models adapt to new market conditions, so your compliance process must adapt too.
• Identifying potential blind spots: Sometimes new regulations or best practice standards might slip through the cracks if your checks only happen sporadically.
Many firms perform internal assessments annually, but if your business is complex or fast-evolving, you might consider semi-annual or quarterly reviews. Think of these as an internal “clean-up day.” You comb through everything—policies, procedures, training modules, even your staff’s daily processes—and you spot any dust bunnies hiding in the corners.
In my opinion, the best place to start is with your compliance manual. Are all the procedures up to date with the current rules? Are employees trained on the newest versions of those rules? Is everyone crystal clear on their responsibilities? Also, it’s good to keep an eye on business model changes. Have you added a new product line, distribution channel, or partnership that might require additional compliance checks?
If your firm originally specialized in equities and recently branched into alternative investments, you may need adjustments in disclosures, risk exposures, or even compliance staff expertise. That’s when an internal assessment can immediately spot misalignments before they become big compliance headaches.
Well, it’s one thing to verify your own compliance posture, but let’s be real—sometimes we get too used to our systems, and potential issues slip by. That’s why the AMC strongly encourages external or third-party verification. By engaging an independent consultant, auditor, or law firm specializing in asset management regulations, you gain an unbiased perspective on your reviews.
External consultants can confirm your internal assessment or reveal discrepancies. And, good news: an external verification can enhance your firm’s credibility. Clients and stakeholders often feel more confident when an objective expert has looked over your procedures and given the thumbs-up.
Imagine a mid-sized asset manager that’s grown from $1 billion to $5 billion AUM in under two years. As the business scales, the compliance function might struggle to keep up. Bringing in an external auditor can highlight overlooked weaknesses, such as insufficient disclosures for new investor types or an inadequate process for ongoing due diligence of unconventional products.
Periodic reviews look for more than just minor checklists. They feed directly into refining your policies and procedures. If your internal team or a third party identifies gaps or outdated protocols, it’s crucial to update your compliance manuals, codes of ethics, and training programs to keep them aligned with real-world operations.
I recall a time when a small investment advisory firm discovered during a review that they had no formal policy about the use of digital messaging apps. Employees were sending quick messages with trade-related info over informal channels. So, they updated their procedures to clarify acceptable communication platforms, introduced a mandatory encryption tool, and trained everyone on best practices. This might sound fairly obvious, but it’s shocking how often such holes can remain unnoticed if you never do a systematic check.
When you roll out policy updates, document them thoroughly. Provide a rationale for the change, include the date of implementation, and specify who’s responsible for enforcement. This method lends clarity and ensures accountability, so your employees know exactly how, when, and why to incorporate new guidelines.
A great periodic review doesn’t stop at the compliance officer’s desk. You want feedback from everyone: compliance staff, investment managers, back-office employees, clients—even third-party service providers. This is your chance to gather ideas and insights from people who are on the front lines.
• Employee feedback: Maybe an employee finds a certain procedure overly complicated. You can simplify it and reduce compliance risk simultaneously.
• Client feedback: If clients find disclosures confusing, it’s a prompt to revise or add clarity to your statements. A more transparent relationship builds trust.
A boutique wealth management firm introduced a new online client portal. During a feedback survey, clients reported they couldn’t easily locate performance data or disclaimers. Armed with those insights, the firm redesigned the interface to better highlight disclaimers and added plain-language performance explanations.
Below is a simple diagram illustrating how feedback loops nest within a broader continuous compliance cycle:
graph LR
A["Periodic <br/>Assessment"] --> B["Identify Gaps <br/>In Policies"]
B --> C["Implement Adjustments <br/>and Training"]
C --> D["Monitor & Document <br/>Changes"]
D --> E["Feedback <br/>Gathering"]
E --> A
As you can see, the feedback loop is the final arrow that circles back to the next round of assessments, ensuring continuous improvement.
• Document everything: That includes any new policy updates, training attendance, and evidence of corrective actions taken.
• Empower employees: Encourage them to voice concerns early. A hierarchical culture where junior staff are afraid to speak can lead to a massive compliance breakdown.
• Watch for “check-the-box” mentality: If your internal reviews become routine to the point of thoughtlessness, you’ll likely miss material issues.
• Balance thoroughness with efficiency: Too many reviews can overwhelm staff; not enough can cause oversight. Find the sweet spot for your firm’s complexity.
• Embrace technology: Consider using compliance management software to automate parts of the review, track policy versions, and schedule training.
It’s tempting to see periodic reviews as big, one-time events. But an annual sea of paperwork can be overwhelming—plus, issues might remain hidden until the next official review. A more robust approach is to integrate micro-reviews into daily workflows:
By the time your big scheduled review rolls around, you’ll already be well-informed about many issues and can focus on deeper structural improvements.
From a CFA® exam standpoint, it’s essential to see how periodic reviews link back to the broader professional standards. For instance, Standard I(A) under the CFA Institute Code of Ethics emphasizes knowledge of the law. Your review process helps ensure ongoing awareness of relevant laws and regulations. Additionally, Standard III(A) focuses on loyalty, prudence, and care in dealing with clients. Regular reviews verify that you’re meeting this duty by maintaining transparent disclosures, properly identifying conflicts, and ensuring best execution.
• Periodic Review: A routine examination of policies, procedures, and controls to ensure ongoing compliance.
• External Verification: An independent assessment typically performed by recognized experts outside the firm.
• Training Programs: Structured sessions designed to educate employees on ethics, regulations, or firm policies.
• Feedback Loop: A mechanism for capturing input from stakeholders and using it to enhance future decision-making.
• DiPiazza, P., & Eccles, R. G. (2020). “Building Trust Through Assurance: The Value of Independent Verification.” Governance Insights.
• CFA Institute. (2023). “Ongoing Compliance with the AMC: Tools and Best Practices.”
I can’t tell you how many times I’ve heard exam questions that revolve around compliance lapses caused by inadequate monitoring. It’s a recurring theme precisely because it’s so central to ethical practice. Remember, the CFA Program wants you to not only grasp theoretical frameworks but also to demonstrate how to apply them in realistic settings. So, be ready with examples of how you’d implement a periodic review, how you’d complete third-party verifications, and how you’d handle newly discovered compliance gaps.
If you’re tackling a constructed-response question, consider walking the grader through the logical workflow: discovery, assessment, updating procedures, training, and feedback. Show that you’re attuned to the big picture—beyond just memorizing bullet points. Demonstrate that you know how to handle ethical challenges on the fly, how to achieve buy-in from stakeholders, and how to preserve the trust of clients and regulators.
Wishing you all the best in your studies—may your next periodic review be smooth sailing!
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