It is important to identify and manage conflicts of interest which arise or may arise in the course of providing a service, as their existence may lead to a material risk of damage to a client’s interests.
This document sets out the policy of those companies within the Close Asset Management group of companies (referred to hereafter collectively as "Close Asset Management") to effectively manage the conflicts of interest that may arise where it provides services to clients in the course of carrying on regulated activities.
The policy is designed to fulfil Close Asset Management’s obligations under SYSC 10, COBS 12 and Principle 8 of the FSA Handbook, both of which implement the Markets in Financial Instruments Directive ("MiFID").
This document is prepared and published in order to comply with the FSA Handbook Rules and is not intended to create third party rights or duties or form part of any contractual agreement between the firm and any client. This policy may be amended at any time if a material change occurs and will be reviewed in accordance with the FSA Rules at least yearly.
The companies within the Close Asset Management group of companies currently comprises: Close Asset Management Limited, Close Investments Limited, Close Multi Manager Limited, Close Asset Management (UK) Limited and Fortune Asset Management Limited.
Close Brothers Group.
The companies in the Close Asset Management group of companies are subsidiary companies (either directly or indirectly) of Close Asset Management Holdings Limited (“CAMHL”), itself a wholly owned subsidiary of Close Brothers Group plc ("CBG").
CBG currently comprises three principal operating divisions: banking, securities and asset management. The organisation structure of each CBG division ensures that staff involved in the day-to-day activities of one division are not involved in the day-to-day activities of any other division.
Close Asset Management is able to demonstrate that it has appropriate and effective arrangements in place to ensure that businesses within CBG operate independently of each other (for example, CBG has implemented systems to ensure that there is no flow of information between businesses and businesses operate under independent management), the business will therefore not be deemed to have knowledge of each other for conflicts of interest purposes.
Close Asset Management group of companies
The Close Asset Management group of companies provides a range of client-driven solutions to investment propositions, including bespoke investment management services to both institutional and retail clients and within the specific areas of:
The services offered by the Close Asset Management group of companies are primarily designed for retail clients, institutional and mutual funds (as appropriate), and include;
- specialist (including the Alternative Investment Market, Fixed Interest, tax mitigation strategies (primarily Inheritance Tax), derivative and structured investments), hedge fund advisory services and funds of hedge funds.
In order to achieve and demonstrate long term success in this aim, Close Asset Management acknowledges that its clients’ interests will always take priority during the development of an investment proposition and will continue to be actively monitored during and after the launch of any new product or service.
- discretionary investment management;
- investment advisory services;
- property management;
- acting as the sponsor of unregulated collective investment schemes; and
- as the manager or authorised corporate director (as appropriate) of regulated collective investment schemes.
Close Asset Management or any Associate or any party to whom it may have delegated its functions (a “Delegate”), may without prior reference to a client, effect transactions in which Close Asset Management or Associate or Delegate has, directly or indirectly, a material interest or a relationship of any description with another party, which may involve a potential conflict with Close Asset Management’s duty to the client.
There is a potential conflict of interest in relation to the access of any such Associate or Delegate to certain information. This is mitigated by the contractual relationship between Close Asset Management and the outsource provider which allows access to the outsource provider’s personal account dealing rules.
In the event of any such transaction, however, Close Asset Management will ensure that:-
- such transactions are effected on normal commercial terms negotiated at arms length and on terms which are not materially less favourable to the client than if the potential conflict had not existed;
- such transactions do not adversely affect the performance of the firm’s duties and responsibilities to the client; and
- it takes reasonable steps to ensure fair treatment for the client in accordance with the requirements of the FSA Rules.
Treating Customers Fairly
Treating Customers Fairly ("TCF") is central to the core values of each of the companies within the Close Asset Management group of companies (and CBG). There is an embedded culture that understands what is acceptable and unacceptable behaviour. As such, conflicts of interest and the identification / management / mitigation thereof are central to this philosophy and culture.
Identification of conflicts of interest
The circumstances giving rise to conflicts of interest includes all cases where there is:
Conflicts may arise and all staff must take into account whether any of the persons described at (1) above:
- conflict between the interests of Close Asset Management, an individual member of staff, certain persons directly or indirectly connected to Close Asset Management or CBG; and the duty that Close Asset Management owes to a client;
- conflict between the differing interests of two or more clients, as Close Asset Management owes a separate duty to each of them.
Specific potential conflicts of interest may arise within each firm within the Close Asset Management group of companies relating to clients, personal account dealing and certain private conflicts of interest. Each of these is explained in more detail below.
- is likely to make a financial gain, or avoid a financial loss, at the expense of the client;
- has an interest in the outcome of a service provided to the client, or of a transaction carried out on behalf of the client, which is distinct from the client’s interest in that outcome;
- has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client;
- carries on the same business as the client; or
- receives or will receive from a person other than the client an inducement in relation to a service provided to the client, in the form of monies, goods,services, other than the standard commission or fee for that service.
Disclosure of conflicts of interest
Close Asset Management will clearly disclose the general nature and source of the conflict of interest to the client before undertaking business for the client. The disclosure will be made in writing and include sufficient detail to enable the client to make an informed decision about the service, in the context of which the conflict of interest has arisen.
The following disclosure is made in compliance with that policy and notes some of the general types of potential conflicts of interests or duties which may arise in the companies in the Close Asset Management group (each a “firm”) because:
- the firm or an Associate undertakes designated investment business for other clients including its Associates (and the clients of its Associates);
- a director or employee of the firm, or of an Associate, is a director of, holds or deals in securities of, or is otherwise interested in any company whose securities are held or dealt in on behalf of a client;
- a transaction is effected in securities issued by an Associate or a client of an Associate;
- a transaction is effected in securities in respect of which the firm or an Associate may benefit from a commission, fee, mark up or mark down payable otherwise than by a client, and/or the firm or an Associate may also be remunerated by the counterparty to any such transaction;
- the firm deals on behalf of a client with, or in the securities of, an Associate;
- the firm may act as agent for a client in relation to transactions in which it is also acting as agent for the account of other clients and/or Associates;
- a transaction is effected in units or shares of In-House Funds, or of any company of which the firm or an Associate is the manager, operator, banker, adviser, custodian or trustee;
- the firm may effect transactions involving placings and/or new issues with an Associate who may be acting as principal or receiving agent’s commission;
- a transaction is effected in securities of a company for which the firm or an Associate has underwritten, or managed or arranged an issue or offer for sale within the previous 12 months;
- a transaction is effected in securities in respect of which the firm or an Associate, or a director or employee of the firm or an Associate, is contemporaneously trading or has traded on its own account or has either a long or short position;
- the firm may effect transactions in investments, the prices of which are being or have been stabilised by transactions involving an Associate; and
- the firm may, when acting as agent for a client, match an order of the client with an order of another client for whom it is acting as agent.
Managing conflicts of interest
It may not be possible to prevent actual conflicts of interest from arising. In that case, Close Asset Management will endeavour to manage the conflict of interests by;
- establishing an information barrier (Chinese wall);
- segregation of duties;
- independent oversight;
- disclosure to the client; or
- declining to provide the service.
A Chinese Wall is a system designed to restrict the flow of information between parts of a firm, or group of companies, performing potentially conflicting functions. The principle is that, in general, those within one Chinese Wall should have no knowledge of confidential transactions taking place within another Chinese Wall and are therefore wholly unaware of, and are able properly to operate without regard to, a conflicting interest outside their Chinese Wall.
The operation of a Chinese Wall may involve a range of practices including the segregation of data and computer systems, as well as physical separation of certain businesses so they are unable to access the same part of the office. The use of a Chinese Wall will be established and enforced by the Compliance Department.
There is a Chinese Wall between the Asset Management Division and the other divisions of the Close Brothers Group. The Close Asset Management group of companies may use the services of other CBG companies where it is considered appropriate to do so provided that their terms of business (including commissions and other charges) are generally comparable with those available from unassociated firms in the markets concerned.
Where another CBG company is used for buying or selling securities in the market, Close Asset Management will ensure that the transaction will only be effected with that CBG company, or any other third party broker, if it meets its obligations under its best execution policy.
Segregation of duties
There are a number of distinct tasks within the discretionary investment management business that may lead to potential conflicts of interest that are mitigated by them being segregated from the individuals directly involved in the tasks and subject to multi-stage processes:
Settlement Account reconciliation – Settlements staff do not reconcile client settlement accounts through which they move settlement monies at the custodian / bank. These are performed by a separate team.
Stock/Asset reconciliation – The stock/asset reconciliation is performed independently from fund managers.
Custodian instructions – All instructions to the custodian that require authorisation are always done by an authorised individual who is either not directly involved in the transaction or dual authorised.
Business flow – All 'business' is processed via a number of different departments, thus ensuring that the process is managed, controlled and auditable accordingly.
Client withdrawals – This process involves persons independent from the fund managers and is subject to an independent checking process.
In addition, there is a set process whereby only certain appropriately trained individuals are able to access and undertake certain ‘system’ activities such as client detail changes. A similar process is in place for signing relevant paperwork.
The management oversight and determination of appropriate remuneration of members of staff is conducted by Close Asset Management senior management. Remuneration for non-advisory and non-investment management staff is based on the overall results within Close Asset Management and is not based on the success of any transaction. Remuneration for investment management staff may be partly based on the performance of the discretionary managed portfolios. Remuneration for advisory and sales staff is partly based on business production.
The organisational structure of each company within the Close Asset Management group of companies ensures that staff involved in day-to-day activities in each area are subject to appropriate management and supervision. Thus each company is able to demonstrate that it has appropriate and effective arrangements in place to ensure that conflicts of interest are properly managed.
In addition, the Close Asset Management group of companies has a Compliance Department which is responsible for ensuring that control structures and procedures within each firm are compliant with relevant laws, regulations, codes of practices relating to the various business activities, initiating appropriate standards and policies and also applying consistency with CBG standards and policies.
In addition to the general types of conflicts of interests which may arise, certain specific conflicts of interests may arise in the provision by Close Asset Management of services to clients. These include the following:-
- There is a potential conflict of interest in how Close Asset Management is remunerated for the advice it offers. This is mitigated by the fact that where Close Asset Management offers an advisory service to retail clients, it does so on a fee basis and if in the course of transacting business it receives any commission from any product provider, this is passed on to the client either directly, indirectly (via an offsetting of fees) or via an enhancement of terms of the investment.
- As the discretionary portfolio management process and ‘in house’ software transacts on a bulk basis across a range of different clients, there is a potential conflict in respect to issues of allocation and consistency. Close Asset Management’s allocation arrangement/process ensures all relevant clients are transacted normally on a similar basis and these arrangements, together with consistency checks are monitored regularly to ensure compliance.
- Where a conflict of interest arises as a result of the day-to-day management of clients’ portfolios, typically involving dealing in illiquid securities, the fund manager is required to document the rationale for the investment decision taken and, where relevant, the allocation between clients’ portfolios.
- For portfolios investing in property where it may not be possible to allocate a holding between clients, the matter is reviewed taking into account various factors including the different requirements of each client’s portfolio.
- There is a potential conflict in respect of the level of trading undertaken and the associated income it creates. This is managed by dealing volumes being regularly monitored by Finance and Compliance and reported upon.
Declining to provide the service
If it is not possible to avoid or manage a conflict of interest, Close Asset Management may have no choice but to decline to provide the service requested.
Private conflicts of interest
Employees are always alert to possible private conflicts of interest. Even the appearance of a conflict between personal gain and the interests of Close Asset Management or clients can erode the trust and confidence on which Close Asset Management’s reputation rests. Accordingly, no employee may act in any transaction involving persons or organisations with which they or their family have any significant connection or financial interest.
Inducements and gifts
No employee may accept from, or give to, any person any gift or other benefit that cannot properly be regarded as justifiable in all the circumstances. Employees may not accept gifts from, or provide gifts to, an individual or firm with whom they conduct, or intend to conduct, business on behalf of Close Asset Management unless it can be demonstrated that no conflict of interest is created by doing so.
Entertainment provided by an employee must fall within the expenses policy of Close Asset Management and should not create any conflict of interest. Entertainment accepted by an employee should be appropriate and the acceptance of such entertainment should not create any conflict of interest. This rule applies even if the direct recipient of the gift or other benefit is the spouse or a child of the employee. The provision or acceptance of gifts and entertainment should be consistent and proportionate with the corporate relationship.
Close Asset Management’s Gifts and Entertainment Policy has been established to ensure that gifts and entertainment given and received comply with this policy. This includes the requirement for gifts and entertainment to be recorded on the Gifts and Entertainment Register.
Personal Account dealing
Employees may only undertake personal investment activities that do not breach applicable law or regulation, do not unduly distract from their employment responsibilities and do not create an unacceptable risk to the company’s reputation. Transactions should also be free from business and ethical conflicts of interest. Employees must never misuse proprietary or client confidential information in their personal dealings and must ensure that clients are never disadvantaged as a result of their dealings.
Close Asset Management’s Personal Account Dealing Policy has been established to ensure that personal account dealing by members of staff comply with this policy. This includes a requirement for pre-deal approval from the independent Compliance function for investments in market traded shares or stocks, debt instruments, warrants or depositary receipts, options or futures and contracts for differences on securities. Specifically, dealing is prohibited in certain situations, including investment in any security or in-house fund where the employee is party or privy to the pricing of that security or in-house fund.
Outside employment and business interests
No employee may engage in any additional occupation without the consent of the Company. In certain circumstances, consent may be withheld.
Employees must not accept personal fiduciary appointments (such as trusteeships or executorships other than those resulting from family relationships) without first obtaining written approval from the CEO and a member of the Compliance Department.
Reporting conflicts of interest
Conflicts of interest situations or potential conflicts situations should be reported immediately by email to the head of the relevant business unit and to Close Asset Management Compliance Officer.
Under SYSC 10.1.6, Close Asset Management must keep a record of the kinds of service or activity carried out by, or on behalf of, Close Asset Management in which a conflict of interest leading to a material risk of damage to the interest of one or more clients has arisen, or may arise. This record must be regularly updated.
Effective: November 2009