ADVERTISING ETHICS, AS WELL AS RETURNS: FEW ASSET MANAGERS DO SO, BLOWING CHANCE TO GAIN DEEPER TRUST OF CUSTOMERS, SAYS STUDY

For a crew that never shied away from a little shameless self-promotion, many asset management companies are being downright demure when it comes to touting their own ethics policies.

By keeping quiet about internal procedures to thwart everything from insider trading to phony financial reporting, investment management companies forfeit an opportunity to gain the trust and respect of potential investors, according to a new survey by PricewaterhouseCoopers LLP.

Indeed, only about 20% of those responding to the survey, released last week, publish their ethical guidelines in shareholder literature.

“We find this surprising since asset managers are often selected on the basis of their reputation, not just for sound investment methodology and performance,” the study’s authors report.

The Pricewaterhouse study surveyed senior officials at 65 U.S. investment firms with a total of more than $1 trillion in assets under management. Companies taking part included Putnam Investments, Morgan Stanley Dean Witter & Co. and American Century Investments.

The survey, which was conducted earlier this year, also found that regulators aren’t the only ones worried about ethical snafus. Some 74% of respondents listed personal and insider trading by money managers as areas of “high concern.” Another 66% said they were worried about conflicts of interest.

“Investment management firms have to be very vigilant in monitoring their compliance policies and procedures to make sure they’re complying with regulatory restrictions and behaving ethically,” says Andrew E. Nolan, a managing partner at Pricewaterhouse, which, of course, provides auditing services to many mutual fund companies.

“It would be easy to deviate from an investment mandate style to take on more risky investments than customers would want in an effort to generate better returns,” he adds.

Not likely, says Louis Harvey, president of Dalbar Inc., a consulting firm in Boston.

Most fund companies keep close tabs on the personal trading of their managers, Mr. Harvey says.

“I’m not saying that you don’t have a thief or a robber in the industry,” he explains. “But it isn’t systemic. It isn’t the kind of thing you can catch procedurally.”

Even so, the Securities and Exchange Commission is expected to issue new rules governing personal trading of fund managers later this year. Many fund companies already have rules in place pertaining to how fund managers may invest their own money.

Among other survey findings:

* Half of all respondents do not measure employee awareness of their organization’s professional conduct policy.

* Only 9% or respondents report that ethical policies have been incorporated into the company mission statement.

* The majority of companies, 81%, uncover ethical slip-ups on their own, either through internal audit exams or compliance tracking reports.

About 65% of respondents said their firm conducted periodic reviews of its ethics program. But many were unclear about when and how often such reviews took place. Consequently, many breaches aren’t detected until after the fact.

Ethical gaps are especially prevalent at smaller fund companies, which are less likely to have formal policies in place to deal with personal trading and similar issues, says Mr. Nolan.

Pamela Wilson, a mutual fund lawyer at the Boston law firm Hale & Dorr, has a slightly different take.

“Larger firms worry a bit more about something slipping through the cracks, because there are more cracks to slip through,” Ms. Wilson says. “Smaller companies probably feel, rightly or wrongly, that they have a better knowledge of what their personnel are doing.”