Conflicts of Interest
Policy

1. Overview

Section 912A(1)(aa) of the Corporations Act requires that in addition to existing legislation, common law and any fiduciary obligations, PAM must: 

have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative. 

Accordingly, the legislation imposes a direct and specific obligation on PAM to have adequate arrangements to manage their conflicts of interest. This obligation applies equally to retail and wholesale clients. 

ASIC Policy Statement 181 (RG181.15) “Licensing: Managing conflicts of interest” defines a conflict of interest as: 

“…circumstances where some or all of the interests of people (clients) to whom a licensee (or its representative) provides financial services are inconsistent with, or diverge from, some or all of the interests of the licensee or its representatives. These include actual, apparent or potential conflicts of interest”. 

The Explanatory Memorandum to the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Clerp 9 Act) i.e. schedule 10 of the Act dealing with conflicts of interest commenced on 1st January 2005 and states (at paragraph 5.599) that there are three main types of conflicts of interest (the following two of which relate to financial services businesses) which will require compliance with the conflicts management obligation. 

(i) A conflict within the financial services business. Examples include: 

• • dealing on behalf of various clients (i.e. ensuring no client is disadvantaged) or providing advisory services and dealing across different areas of the business (such as publishing research in a client newsletter and market making).

(ii) A conflict between something within the financial services business and something outside the financial services business. Examples include: 

• • the licensee lending (as principal) to a particular enterprise whilst at the same time underwriting a public offer for the same enterprise, or 
  • where the objectivity of research is compromised by the analyst’s personal interests or relationships. 

Accordingly, conflicts of interest are circumstances where some or all of the interests of a client are inconsistent with, or diverge from, some or all of the interests of PAM or its representatives providing the financial services to the client. This includes actual, apparent and potential conflicts of interest. 

Licensees whose interests conflict with those of the client are more likely to take advantage of that client in a way that may harm that client and may diminish confidence in the licensee or the market. Accordingly, PAM must look broadly at the client’s interest whether or not it has a legal duty to take those interests into account. 

It is also important to remember that the client relationship gives rise to a fiduciary duty in relation to the representative’s conduct towards the client. To meet the requirements arising from the fiduciary duty, PAM, its Directors, employees and other representatives have fiduciary duties that include: 

• • avoid any potential conflicts of interest; 
  • the duty to use reasonable skill and care; 
  • the duty to act in the clients’ best interest and to do the best on behalf of the client; 
  • the duty to follow instructions from clients; 
  • disclose any financial interest in the investment or financial product advice offered to a client; and 
  • obtain for the client the best terms available in the situation. 

A breach of fiduciary obligations can have serious consequences for PAM. These consequences include: 

• • Rendering any contract/agreement between PAM and the client void; 
  • Preventing the recovery of any fee or charge to which PAM would otherwise be entitled; and 
  • Exposing PAM to liability in relation to accounting to the client for any profit foregone or any loss sustained. 

2. Structural arrangement to manage conflicts of interest 

The conflicts management obligation does not prohibit conflicts of interest. Rather, PAM must have adequate arrangements to manage all conflicts of interest affecting its business. Such conflicts management arrangement must be established and maintained and be appropriate to the nature, scale and complexity of the business. PAM uses the following mechanisms to manage conflicts of interest: 

• • controlling the conflicts of interest, 
  • disclosing the conflicts of interest; and/or 
  • avoiding the conflict of interest. 

Thus, where conflicts cannot be adequately managed through controls and disclosure, PAM must avoid the conflict i.e. for those conflicts of interest that have such a serious potential impact on PAM or its clients, the only way to adequately manage those conflicts will be to avoid them and refrain from providing the relevant financial service. 

The representatives of PAM are all aware of the potential conflicts of interests which exist in the business. Any future representatives will undergo an induction training which will include the arrangements to manage conflicts of interest which affect the business. 

3. Procedures for Identification, Assessment and Evaluation of potential conflicts of interest 

The Compliance Officer (in consultation with senior management) has undertaken an assessment of potential conflicts of interest. From the results of this assessment, a conflicts management matrix was developed which is attached (Annexure A). Should any Representative become aware of a situation which they believe constitutes, or may constitute, a conflict of interest, the matter should be discussed with the Compliance Officer immediately to enable him to assess and evaluate the conflict and implement procedures to control or disclose the conflict or alternatively, make the decision to avoid the conflict.

4. Procedures for controlling conflicts of interest 

To control conflicts of interest PAM has: 

• • identified the conflicts of interest relating to its business; 
  • assessed and evaluated those conflicts; and 
  • decided upon, and implemented, an appropriate response to those conflicts. 

Conflict management arrangements will be regularly monitored i.e. the Compliance Officer, as part of the Compliance Monitoring Program and/or as the business changes, will regularly review PAM’s conflicts management arrangements to ensure that they continue to be appropriate. 

In addition, on a periodic basis an external service provider will undertake a review of compliance procedures and measures. As part of this review, the conflicts management arrangements will also be reviewed to confirm that they are adequate to identify, assess, and evaluate and successfully control conflicts of interest. 

(a) Remuneration practices 

The remuneration structure of the representatives of PAM has been considered to ensure that PAM has adequate conflict management arrangements in place. Part 7.7 of the Corporations Act generally approaches remuneration issues from a disclosure perspective i.e. remuneration must be fully disclosed in the Financial Services Guide (FSG) or a Statement of Advice (SOA) (where applicable). 

However, Part 7.7 of the Corporations Act is not applicable to PAM’s funds management business as these obligations are for licensees providing financial services to retail clients. PAM provides its prospective clients with an Investment Management Agreement (IM Agreement) which clearly discloses the fees payable to PAM. 

Remunerations practices that place the interest of PAM or its representatives in direct and significant conflict with those of its clients (i.e. whereby it may impact upon PAM’s ability to provide an efficient, honest and fair provision of financial services) should be avoided (and not merely disclosed). By way of an example, ASIC RG181.38 states that licensees should avoid remuneration structures where advisers are paid exclusively by commission (e.g. no salary or other remuneration is paid) and that the need for robust conflicts management arrangements is likely to be higher where a licensee relies heavily on commission based remuneration. 

All PAM representatives are remunerated by way of salary and discretionary bonus based on the overall profit generated by PAM. PAM is paid a management and incentive fee linked to the performance of the portfolios it operates/manages i.e. Managed Discretionary Accounts (“MDAs”). 

The performance of the MDAs are directly a result of the decisions made by PAM. Hence, the interest of the client and PAM are closely aligned i.e. they both derive their income (fee) based on the performance of the MDA. 

Accordingly, the control implemented to manage this potential conflict of interest is to ensure that all investments are independent and objective and well supported by proper research and analysis. Furthermore, investments are unambiguous, consistent and transparent. 

(b) Treating clients fairly 

PAM must ensure that it treats its clients equitably and fairly. PAM operates ‘separate’ and ‘individually managed’ accounts on behalf of its clients. Accordingly, each client account is separately maintained in the individual client’s name i.e. funds will not be pooled into one account. Hence, it is very important that all clients (investors) are treated equitably. 

The number of clients must be “reasonable” i.e. all accounts must be well maintained and administered. 

PAM has developed an equitable method for allocating transactions where there has been a partial fill or “bulk orders” have been filed at varying prices i.e. to mitigate conflicts of interest arising out of split fill allocations (if any) when placing “bulk orders” on behalf of a number of MDAs (refer to PAM’s “Allocations Policy” document). 

By carrying out fill allocations as outlined in the Allocations Policy, clients of PAM receive neither advantage nor disadvantage in relation to any other MDAs in terms of price and fill allocations. 

Notwithstanding, PAM has considered the following: 

(i) Is PAM providing financial services in a manner that unfairly puts the interests of itself (or its representatives) ahead of its clients? 

The interests of PAM and the interest of its client are closely aligned. Both PAM and the client derive their income (fee) based on the performance of the MDA. Thus, the performance of the MDA is a common goal and does not result in PAM putting its interests before its client. 

(ii) Is PAM providing financial services in a way that unfairly puts the interests of one client ahead of the interests of other clients? 

PAM has developed an equitable method to mitigate conflicts of interest that may arise out of split fill allocations (if any). No clients should be disadvantaged by this allocation policy (refer above). 

(iii) Is PAM using knowledge about its clients in a way that is likely to advance its own interests without sufficient disclosure to affected clients? 

PAM appreciates that it may be faced with conflicts of interest with regard to its staff or other representatives, however, it will endeavour to ensure that strict staff trading procedures are followed. 

5. Procedures for disclosing conflicts of interest

Clients must be “adequately informed” about any material conflicts of interest that may affect the provision of financial services to them. 

Adequate disclosure means providing enough detail in a clear, concise and effective form to allow clients to make an informed decision about how the conflict may affect the service being provided to them. 

Accordingly, general disclosure is unlikely to satisfy this requirement. 

PAM must ensure that disclosure of conflicts of interest: 

(i) is timely, prominent, specific and meaningful to the client; 

(ii) occurs before or when the financial service is provided (allowing the client a reasonable time to assess its effect); and 

(iii) refers to the specific service to which the conflict relates. 

ASIC RG181.54 states that when providing financial product advice, disclosures on the following matters will generally be appropriate and should be given at or about the time of providing the advice: 

(a) the extent (if any) to which PAM (or any associated person) has a legal or beneficial interest in the financial products that are the subject of the financial product advice; 

(b) the extent (if any) to which PAM (or any associated person) is related to or associated with the issuer or provider of the financial products that are the subject of the financial product advice; and 

(c) the extent (if any) to which PAM (or any associated person) is likely to receive financial or other benefits depending on whether the advice is followed. 

 PAM operates individual MDAs. Accordingly, the advice provided by PAM will be limited to the initial contact with a prospective client. At this time, PAM will explain to the prospective client the trading method (strategy) which has been adopted by PAM and its view of the markets in general terms. 

All trading by PAM on behalf of that client will be on a discretionary basis (i.e. without prior reference to, or prior approval of, the client). Accordingly, with respect to (a), (b) and (c) above, no conflict is likely to arise. Therefore the disclosure of such matters is contained in the Offer Document (IM Agreement). 

6. Procedures for avoiding conflicts of interest

If a conflict has a serious potential impact upon PAM or its client(s), then that conflict must be managed by avoiding it. In such cases, merely disclosing the conflicts and imposing internal controls will be inadequate. 

Should any representative become aware of a situation which they believe constitutes, or may constitute, a conflict of interest, the matter should be discussed with the Compliance Officer (and/or RMs) immediately to enable him (them) to assess and evaluate the conflict and implement procedures to control or disclose the conflict or alternatively, make the decision to avoid the conflict. 

7. Putting the interests of clients first 

Representatives have a fundamental duty to put the interests of clients first and should not allow this duty to be influenced by their own interests or those of PAM. It is the responsibility of PAM to comply with the ethical standards against which the integrity and quality of its service shall be judged. 

Representatives must therefore be independent and objective and have a reasonable basis, supported by proper due diligence or analysis, for the financial products in which they invest. It is the responsibility of PAM to adhere to the following standards to ensure PAM’s commitment to clients and to promote and protect client confidence and integrity in the financial markets. 

The following guidelines have been developed to ensure that PAM and any Representative are familiar with their responsibilities and do not allow any possible conflict of interest to affect their service to clients. 

(i) Independence
All representatives are expected to be independent and objective observers and must have a reasonable basis, supported by analysis for any investments made for each MDA. 

(ii) Disclosure of Interests
Any reports or other publications will specifically and prominently disclose any conflicts of interests or potential conflicts of interest of PAM (and its representatives). 

(iii) Other Disclosure
A report must disclose, specifically and prominently a list of definitions of the terms used in the report and, if applicable, all risk factors. 

8. Outsourcing 

PAM recognises the importance of ensuring the longevity of good reliable relationships with service providers. 

Accordingly, PAM has established outsourcing procedures which must be complied with prior to the appointment of an outsourcing partner and provides guidance on the procedures to be followed during the relationship. One of the issues considered prior to the appointment of a service provider includes the determination of whether any conflicts of interest may arise. 

Service providers will be required to disclose any possible conflicts of interest during the selection process. Service providers that are considered to be inappropriate (such as family members or other close relatives i.e. where the potential conflict is too great) will be discarded. 

Conflict can arise in many situations. For example, a conflict of interest exists when an employee, or family member, obtains a personal benefit at PAM’s (or its client’s) expense or contrary to PAM’s (or its client’s) best interest. While it is impossible to identify every type of relationship, activity or interest which constitutes a potential conflict, there are certain types of conduct which must be avoided or disclosed when encountered (in this regard representatives are referred to paragraph 9 below). 

Once a service provider has been approved, a term of the service agreements will be that the service provider immediately notifies PAM if it becomes aware of any conflict or potential conflict that could impact on its ability to provide the services. 

All concerns will be reported to the Compliance Officer and/or RMs. The Compliance Officer (in consultation with senior management and the RMs) will determine whether PAM should continue with that service provider or terminate the agreement. 

9. Conflicts of Interest specific to staff 

The importance of employee involvement in outside business, political and community activities is recognised by PAM. Whilst PAM encourages representatives to engage in such activities, it does so on the basis that the activities are legal and they do not interfere with the proper performance of the duties of representatives, nor create a conflict of interest for PAM (or its representatives). 

Each representative is expected to avoid or disclose any, activity, investment, interest or association of the representative or members of his/her immediate family which interferes, or appears to interfere, with the representative’s ability to exercise proper judgement in the advancement of PAM’ business and best interests. 

While it is impossible to identify every type of relationship, activity or interest which constitutes a potential conflict, there are certain types of conduct which must be avoided or disclosed when encountered. Examples of potential conflicts which must be avoided or disclosed, include: 

(i) Ownership by a representative or immediate family member of a substantial financial interest in a business which maintains a relationship with, or is a competitor of PAM. 

(ii) Employment of direct family member. 

(iii) Employment or significant affiliation with an organisation which does or seeks significant business with or is a competitor of PAM. 

(iv) Extension to, or acceptance by, a representative or immediate family member of compensation, loans (other than from an established bank or financial institution under customary terms and rates), gifts of more than token value, or substantial benefits or favours to or from a client or an organisation or individual which does or seeks to do business with, or is a competitor of, PAM. 

(v) Representation of PAM by a representative in a transaction in which the representative, immediate family member or business associate of the representative has a substantial interest in the transaction. 

(vi) Disclosure of confidential PAM information. Disclosure may be made to a person who represents, is employed or retained by PAM if such person is required to know such information to properly perform his/her duties. 

(vii) A representative’s use of confidential PAM information for personal profit or advantage. 

(viii) Competition with PAM by a representative, directly or indirectly, in any purchase, sale or other transaction in which PAM is a party. 

Representatives should avoid not only a conflict of interest but also the appearance of a conflict of interest. While there is no absolute test to determine what constitutes a conflict, or the appearance of a conflict, representatives should consider how others could view the activity or interest. 

As a result, representatives must seek management approval in writing before entering into or continuing the transaction or relationship. 

As a result, representatives must: 

(i) Complete a Disclosure Form, available from Compliance Officer; and 

(ii) Seek approval from the Compliance Officer in writing before entering into or continuing the transaction or relationship. 

10. Dealings in securities whereby representatives of PAM (and/or related personnel) are on the Board, are major shareholders or whereby representatives may be privy to price sensitive or confidential information 

It is important to note that anyone in possession of ‘price sensitive information’ is restricted by law from disclosing that information. This is commonly referred to as “insider trading”. 

Broadly speaking, insider trading involves the dealing in securities of a company by a person in possession of price sensitive information concerning a company’s affairs, which is not generally available. It is irrelevant whether or not that person makes a profit if the person trades on inside information. 

Inside information is information that is: 

• Not generally available; and 

• If the information were generally available, a reasonable person would expect it to have a material effect on the price or value of the financial product. 

No Director or employee of PAM is permitted to: 

• Deal in financial products where you are in possession of inside information; or 

• Use of pass on inside information to any other person, other than in the proper discharge or your duties. 

Accordingly, representatives of PAM (and/or related personnel) with such information would have a fiduciary obligation and act under a duty of care not to pass that information to PAM (or anyone else) or to act upon that information. 

Companies whereby representatives (and/or related personnel) of PAM are on the Board, are major shareholders or in possession of price sensitive or confidential information may result in a potential conflict. As a result, all trading in such companies may only occur in accordance with strict procedures as set out in this policy (refer below). This will protect PAM from any incorrect market perceptions and ensure PAM can justify any investments made. 

(i) It is a mandatory requirement that all representatives notify PAM of their position (or standing) in any listed (or associated) company. 

(ii) Consistent with the law, all representatives are prohibited in all circumstances from trading at any time if they are in possession of non-public price sensitive information regarding the company. 

(iii) Investments in such companies must be documented and well supported i.e. all investments must be based on either technical, fundamental or statistical analysis and be well supported by proper research and analysis. Furthermore, investments must be unambiguous, consistent and transparent. 

(iv) Representatives are only permitted to buy and sell securities on market. 

(v) Representatives are prohibited from procuring others to trade when PAM and/or its representatives are precluded from trading. 

(vi) No trading may occur without the permission of Head of Investments and CEO or Compliance Officer. Permission will ordinarily only be granted in the event that the person involved is not in possession of non-public price sensitive information. Requests for permission should be made through Head of Investments and CEO or Compliance Officer.

(vii) Once a trade has been made, details including volume and price, must be reported to the Compliance Officer. 

11. Monitoring Compliance with PAM’s Policies and Procedures 

PAM monitors compliance with this policy to manage conflicts of interest that may influence the integrity of the markets and PAM’s ability to provide an efficient, honest and fair provision of financial services. 

The Compliance Officer conducts reviews to identify, assess and evaluate conflicts of interest to the business and to ensure that the procedures operating are adequate. 

Where instances of non-compliance with PAM’s conflicts management arrangements are identified, disciplinary action may be instigated against the Representative concerned. 

In some circumstances, PAM may be obliged to notify regulatory and/or criminal authorities of a serious breach of this policy. For example, insider trading is a crime and can result in imprisonment, fines, orders to pay compensation and other penalties against PAM and its representatives. 

12. Record Keeping 

PAM will maintain a Register, for at least seven years, which contains records of: 

(i) The conflicts identified and action taken; and 

(ii) Any reports given to PAM about conflicts of interest matters. 

Copies of written conflicts of interest disclosures given to clients will form part of the IM Agreement and/or will be filed in the client’s file. 

13. Procedures for ensuring that the quality of your services is not significantly compromised by the presence of conflicts of interest 

The quality of the service is not significantly compromised by the presence of conflicts of interest as PAM: 

(a) Manages any minor conflicts; or alternatively 

(b) discloses all material conflicts i.e. such disclosures are contained in its IM Agreement and other reports. 

14. Persons responsible for implementing, reviewing and updating the conflicts management arrangements 

The person/s responsible for implementing, reviewing and updating the conflicts management arrangements are the Executive Directors. 

Conflict management arrangements will be regularly monitored and reviewed by the Compliance Officer, as part of the Compliance Monitoring Program and/or as the business changes.