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Code of Best Practice

 

          The law indentifies the responsibilities of the fund committee in general. Those are taking care of the fund, appointing the asset management committee and being a fund representative dealing with others. However, those responsibilities can be called "fiduciary duty", which can be classified into 3 categories:
 

           Duty of loyalty

            Duty of care

           Duty to monitor

 1


 Duty of Loyalty


          In practice, fund committee may involve with any transaction with parties in interest or called "conflict of interest". Parties in interest are people or organizations who have close ties to the plan, such as employer, asset management company, custodian and auditor. Examples of conflict of interest transactions are:

                 asset management company offers any gifts to fund committee if it is selected for the next contract

                 employer asks the asset management company to stop payment to resigned member who still has debt with the employer

          
Practice

          You must have a manual which includes the practice for dealing with any transaction with parties in interest. This practice must be in accordance with the ethics including the topics below:

          1. Conflict of Interest Transaction : You should have an investment procedure dealing with conflict of
interest transaction. Moreover, you should set a practice guideline when encounter this transaction.

         2. Selecting service providers : When you select service providers such as asset management
committee, fund administrator, custodian, or auditor, you should have a standard of selecting service providers and
disclosure information.

         3. Payment to member : You are responsible to give payment to member within 30 days after termination.
Thus, you should have a payment guideline to ensure that member receive payment within the definite time.

2

Duty of Care 

          
Fund committee are selected by members to manage the fund for the best interest. Therefore, they must use discretion in selecting any asset management company that has good system and people to manage the fund. Moreover, another important responsibility is to set an investment policy. In practice, they may have problem such as follows:

                 lack of guideline in selecting asset management company could lead to considering only low management fee and ignoring the quality of services.
                 identify investment policy that is not suitable for member's favourite and risk.
                 lack of monitoring asset management company to vote for the fund as a shareholder of the investment stock.

          
Practice

          You must have a manual that reflects the discretion of the fund committee. The manual should have these topics:

          
1. Selecting asset management company : You must realize that the heart of management provident fund is investment. Thus, in selecting asset management company or review contract with the current one, you must concern that they have a good and safe investment system to operate your fund and have a strong stability to run the business.

          2. Setting investment policy : Basicly, members have different background and need. It is difficult to set investment policy that meets all members' need. Therefore, you should concern the majority demand and make a decision. You must also consider diversification to minimize risk and maximize return that would benefit to members. Moreover, the benchmark must be set in accordance with your investment policy in order to compare with your fund's return.

          3. Selecting auditor : You are responsible to select and appoint an auditor. You should check whether he/she is qualified. For fund with 100 members or less, you may appoint any auditor who has a Certified Public Accountant certificate (CPA). However, for fund with more than 100 members, you must appoint an auditor from the SEC list.

          4. Proxy voting : Every shareholder of the shares receives proxy resolution and voting materials, via the asset management company, to inform fund committee of issues for consideration at the company's annual general meeting (AGM) each year. Fund committee, as a fund representative, is a fund's proxy. Then, you should vote your proxy ballots in accordance with your values and what you believe will improve the company's bottomline. You may set the guideline for the proxy voting. If you do not vote, you should authorize asset management company to vote for the fund and monitor the result..

           5. Disclosure : Members are entitled to receive all information of the fund. Your continuing communication with members will create more confidence to members. You should disclose sufficient information to members whenever you need their decision involving the fund's operation by setting guideline that contains topics, details, frequency, and communication channel.

           6. Record keeping : You should keep the fund's records in a safe and easy-access form. These records are memorandum of the fund committee meeting, payment bills, member information, investment records, or governing rule modification document.  They must be shown whenever members or authorities make a request.
 

3

Duty to Monitor


           Laws has specified that fund committee must appoint the asset management company to manage provident fund and appoint the custodian to keep fund assets. This is a key issue of fund governance that create more confidence to members. Fund committee has responsibility to monitor these service providers

        
  Practice

          You must have a manual to monitor the operation of service provider. The manual should cover these topics:
          
1. Investment policy : You should examine the investment of fund manager whether it goes along with the investment contract

          2. Asset valuation : Principally, the asset management company must calculate the daily asset value using the mark-to-market method according to the notice of the Association of Investment Management Companies (AIMC). Using any other appropriate calculation methods is possible depending on the approval of the fund committee. and get approval from fund committee.

          3. Fund performance : Practically, past performance doesn't guarantee the future performance. However, it is one important factor that reflects the efficiency of asset management company. You may monitor your fund performance with benchmark or other funds' performance.

 


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