CONFLUENCE COMPLIANCE MANUAL

December 2020

 

 

Code of Ethics

Policy

Confluence, as a matter of policy and practice, and consistent with industry best practices and SEC requirements (SEC Rule 204A-1 under the Advisers Act and Rule 17j-1 under the Investment Company Act, which is applicable if the firm acts as investment adviser to a registered investment company), has adopted a written Code of Ethics covering all supervised persons. Our firm's Code of Ethics requires high standards of business conduct, compliance with federal securities laws, reporting and recordkeeping of personal securities transactions and holdings, reviews and sanctions. The firm's current Code of Ethics, and as amended, is incorporated by reference and made a part of these Policies and Procedures.

Background

In July 2004, the SEC adopted an important rule (Rule 204A-1) similar to Rule 17j-1 under the Investment Company Act, requiring SEC advisers to adopt a Code of Ethics. The new rule was designed to prevent fraud by reinforcing fiduciary principles that govern the conduct of advisory firms and their personnel.

The Code of Ethics rule had an effective date of 8/31/2004 and a compliance date of 2/1/2005. Among other things, the Code of Ethics rule requires the following:

An investment adviser's Code of Ethics and related policies and procedures represent a strong internal control with supervisory reviews to detect and prevent possible insider trading, conflicts of interest and potential regulatory violations.

 

 

Responsibility

The Chief Compliance Officer has the primary responsibility for the preparation, distribution, administration, periodic reviews and monitoring of our Code of Ethics, practices, disclosures, sanctions and recordkeeping.

Procedure

Confluence has adopted these procedures to implement this policy on personal securities transactions and our Code of Ethics and reviews to monitor and ensure the firm's policy is observed, implemented properly and amended, as appropriate, which include the following:

 

 

 

 

CODE OF ETHICS

Statement of General Policy

Confluence Investment Management LLC (the “Adviser,” “we,” “our”, or “us”) seeks to foster a reputation for integrity and professionalism. The confidence and trust placed in us by our clients is something that is highly valued and must be protected. As a result, any activity that creates even the suspicion of misuse of material non-public information by the Adviser or any of our employees, which gives rise to or appears to give rise to any breach of fiduciary duty owed to our clients, or which creates any actual or potential conflict of interest between our client and the Adviser or any of our employees or even the appearance of any conflict of interest must be avoided and is prohibited. At the same time, we believe that individual investment activities by our officers and employees should not be unduly prohibited or discouraged.

SEC Rule 204A-1 under the Investment Advisers Act of 1940, as amended (the “Rule”), requires that the Adviser adopt a code of ethics setting forth standards of conduct for us and our Supervised Persons (as defined below). In addition, SEC Rule 17j-1, under the Investment Company Act of 1940, as amended (the “Investment Company Act”), requires that the Adviser adopt a code of ethics containing provisions reasonably necessary to prevent access persons (as defined in Rule 17j-1 of the Investment Company Act) from engaging in any act, practice or course of business prohibited by Rule 17j-1. Accordingly, this Code of Ethics (the “Code”) has been adopted to ensure that employees responsible for developing or implementing investment advice or who communicate such advice to clients will not be able to act thereon to the disadvantage of clients. The Code does not purport comprehensively to cover all types of conduct or transactions which may be prohibited or regulated by the laws and regulations applicable to Adviser and persons connected with it. It is the responsibility of each employee to conduct personal securities transactions in a manner that does not interfere with the transactions of the Adviser’s clients or otherwise take unfair advantage of such clients, and to understand the various laws applicable to such employee. Likewise, each Supervisory Person is required to report any violations of this Code promptly to the Compliance Officer as defined below.

 

 

 

 

trusts that are invested exclusively in one or more open-end Funds, none of which are Reportable Funds.

 

 

Each Supervised Person must comply with all applicable Federal Securities Laws. Without limiting the generality of the foregoing, Supervised Persons shall not, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by a client:

No Supervised Person shall seek or accept favors, preferential treatment or any other personal benefit because of his or her association with the Adviser, except those usual and normal benefits directly provided by the Adviser.

No Supervised Person shall accept or offer any entertainment, gift or other personal benefit that may create or appears to create a conflict between the interests of such person and the Adviser. Supervised Persons are prohibited from receiving any gift or other personal benefit of more than de minimis value from any person or entity that does business with or on behalf of the Adviser. In addition, Supervised Persons are prohibited from giving or offering any gift or other personal benefit of more than a de minimis value to any person or entity who is an existing or prospective client or any person that does business with or on behalf of the Adviser and shall be absolutely prohibited from giving or offering any gift or other personal benefit to any client or prospective client that is a governmental entity or official thereof or official of any governmental entity investment, retirement or pension fund. For purposes of this Code, de minimis is defined as reasonable and customary business entertainment, such as an occasional dinner, a ticket to a sporting event or the theater, or comparable entertainment which is neither so frequent nor so extensive as to raise any question of propriety. Employee limits for gifts and entertainment are outlined in the compliance manual. Any questions regarding the receipt of any gift or other personal benefit should be directed to the Compliance Officer.

 

 

If any Supervised Person is aware of a personal interest or outside business activity that is, or might be, in conflict with the interest of any client, that Supervised Person should disclose the situation or transaction and the nature of the conflict to the Compliance Officer for appropriate consideration. In addition, no Supervised Person may use knowledge about pending or currently considered securities transactions for clients to directly or indirectly profit personally. Without limiting the foregoing, Supervised Persons who are planning to invest in or make a recommendation to invest in a security, and who have a material interest in the security or a related security, must first disclose such interest to his or her manager or the Compliance Officer. Such manager or the Compliance Officer shall conduct an independent review of the recommendation to purchase the security for clients and written evidence of such review shall be maintained by the Compliance Officer. Supervised Persons may not fail to timely recommend a suitable security to, or purchase or sell a suitable security for, a client in order to avoid an actual or apparent conflict with a personal transaction in a security.

Regarding SEC Rule 206(4)-5 “pay to play” practices, Supervised Persons are prohibited from making campaign contributions to elected officials in an attempt to influence the awarding of contracts for the management of public pension assets and similar government investment accounts. It is Confluence policy that if any employee seeks to make a political contribution on behalf of themselves or the Adviser to any federal, state or local candidate or to any political association or group, they must obtain pre-approval from the Compliance Officer.

Access Persons are prohibited from accepting any appointment to the boards of directors of any portfolio companies, whether or not its securities are publicly traded, absent prior authorization of the Compliance Officer. In determining whether to authorize such appointment, the Compliance Officer shall consider whether the board service would be averse to the interests of the Adviser’s clients, would interfere with or hinder the Adviser’s ability to provide recommendations to its clients, and whether adequate procedures exist to ensure isolation from those making investment decisions. All Supervised Persons shall report existing board positions with for-profit corporations, business trusts or similar entities within ten (10) days of becoming a Supervised Person. All Supervised Persons must notify the Compliance Officer within ten (10) days before accepting a new appointment to serve on the board of directors of any for-profit corporation, business trust or similar entity.

U.S. securities laws and regulations, and certain foreign laws, prohibit the misuse of “inside” or “material non-public” information when trading or recommending securities. In addition, Regulation FD prohibits certain selective disclosure of information to analysts.

 

 

Inside information obtained by any Supervised Person from any source must be kept strictly confidential. All inside information should be kept secure, and access to files and computer files containing such information should be restricted. Persons shall not trade securities while in possession of or disclose material non-public or insider information except as may be necessary for legitimate business purposes on behalf of the Adviser as appropriate. Questions and requests for assistance regarding insider information should be promptly directed to the Compliance Officer. Inside information may include, but is not limited to, knowledge of pending orders or research recommendations, corporate finance activity, mergers or acquisitions, advance earnings information, clients’ securities holdings and transactions, and other material non-public information that could affect the price of a security.

A client’s identity, financial circumstances and account information are also confidential and must not be discussed with any individual whose responsibilities do not require knowledge of such information. The Adviser has separate policies on privacy that also govern the use and disclosure of client account information.

 

 

 

 

The trading restrictions in Section 7 and the preclearance requirements of Section 8 do not apply to the following types of transactions:

Access Persons shall submit to the Compliance Officer the reports set forth below. Any report required to be filed shall not be construed as an admission by the Access Person making such report that he/she has any direct or indirect beneficial interest in the security to which the report relates.

(ii) make prompt arrangements for copies of confirmations/transaction information to be sent to the Compliance Officer/personal trading compliance system; and (iii) make arrangements for the Compliance Officer to receive duplicate account statements for accounts that do not interface with the personal trading compliance system.

 

 

The information contained in the initial holdings report must be current as of a date no more than 45 days prior to the date the person becomes an Access Person.

An Access Person need not make a quarterly transaction report if the report would duplicate information contained in broker trade confirmations or account statements, so long as the confirmations or account statements are received by the Compliance Officer no later than thirty (30) days after the end of the applicable quarter.

 

 

effected for, and Covered Securities held in, any account over which the Access Person has no direct or indirect influence or control. Specifically, this exception includes investments in Confluence investment strategies for which Confluence has discretion and the account is invested/traded along with similar accounts at that custodian. Access Persons wishing to rely on this exception must receive prior approval from the Compliance Officer. In addition, an Access Person need not make reports pursuant to Section 10(b), 10(c) or 10(d) with respect to transactions effected pursuant to an Automatic Investment Plan or with respect to Section 9(e) if they have provided the Compliance Officer the necessary attestation. Specifically, this provides a waiver from the preclearance trading and reporting requirements if an access person’s account only holds ETFs and/or Covered Securities exceptions as described in Section 1(g) (e.g., mutual funds, US treasuries, UITs).

Confluence owes a duty of trust and a fiduciary responsibility to each client. Employees must act in good faith as they complete their responsibilities and must always place client interests ahead of their own. When fiduciary responsibility as well as the duties of trust and good faith are breached, the client may be harmed and the trust that Confluence has strived to build with its clients is diminished. Each Confluence employee is obligated to promptly report misconduct, violations or suspected violations of rules, laws, internal policies, and of the Code of Ethics to the CCO or, in the absence of the Compliance Officer, to the Chief Operating Officer or Chief Executive Officer.

The Compliance Officer shall be responsible for all aspects of administering this Code and for all interpretative issues arising under the Code. The Compliance Officer is responsible for considering any requests for exceptions to, or exemptions from, the Code (e.g., due to personal financial hardship). Any exceptions to, or exemptions from, the Code shall be subject to such additional procedures, reviews and reporting as may be deemed appropriate by the Compliance Officer and shall be reported to the board of managers of the Adviser at the next regular meeting. The Compliance Officer will take whatever action he/she deems necessary with respect to any officer, member of the board of managers or employee of the Adviser who violates any provision of this Code.

At least once a year, the Compliance Officer shall review the adequacy of the Code and the effectiveness of its implementation. In addition, on an annual basis, the Adviser must provide a written report to the Board of Directors of any Reportable Fund for which the Adviser serves as investment adviser that describes any issues arising under the Code since the last report to the Board of Directors, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to the material violations. The report will also certify to the Board of Directors that the Adviser has adopted procedures reasonably necessary to prevent Access Persons from violating the Code. The Report should also include significant conflicts

 

 

of interest that arose involving the Adviser’s personal investment policies, even if the conflicts have not resulted in a violation of the Code.

Any material changes to the Code will be submitted to the appropriate contact of any Reportable Fund for which the Adviser serves as investment adviser for approval.

The Adviser shall maintain records, at its principal place of business, of the following: a copy of each Code in effect during the past five years; a record of any violation of the Code and any action taken as a result of the violation for at least five years after the end of the fiscal year in which the violation occurs; a record of all written acknowledgments of receipt of the Code, and all amendments thereto, for each person who currently is, or within the past five years was, a Supervised Person; a copy of each report made by Access Persons as required in this Code, including any information provided in place of the reports for at least five years after the end of the fiscal year in which the report is made or the information is provided; a record of all persons required to make reports currently and during the past five years; a record of all who are or were responsible for reviewing these reports during the past five years; for at least five years after the end of the fiscal year in which approval is granted, a record of any decision and the reasons supporting that decision, to approve an Access Person’s purchase of securities in an Initial Public Offering or a Limited Offering; and a copy of reports provided to the management committee of the Adviser regarding the Code.

All Supervised Persons shall conduct themselves at all times in the best interests of the Company. Compliance with the Code shall be a condition of employment or continued affiliation with the Adviser and conduct not in accordance shall constitute grounds for actions which may include, but are not limited to, a reprimand, a restriction on activities, disgorgement, termination of employment or removal from office. All Supervised Persons shall certify upon becoming a Supervised Person and thereafter annually that they have received a copy of and read the Code, and all amendments thereto, and agree to comply in all respects with this Code and that they have disclosed or reported all personal securities transactions, holdings and accounts required to be disclosed or reported by this Code.

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October 28, 2020

 

 

ACKNOWLEDGEMENT AND CERTIFICATION [or E-Acknowledgment]

I acknowledge that I have read the Code of Ethics, which I will retain for future reference, and agree to comply in all respects with the terms and provisions thereof.

I have disclosed or reported all personal securities transactions, holdings and accounts required to be disclosed or reported by this Code of Ethics and have complied with all provisions of this Code.

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