In an effort to bridge the gap in the lagging fiduciary duty legislation, the Institute for the Fiduciary Standard, along with the help of industry experts (including the Financial Fiduciaries Team!) has created a proposed list of best practices to “help investors identify true fiduciaries committed to objectivity, transparency, and plain English communications. Crafted to be concrete, verifiable and understandable – Best Practices communicate to investors how true fiduciary advisers and brokers are a breed apart,” according the Institute’s President, Knut A. Rostad.
The guide outlines 11 proposed best practices, which include:
- Affirm that the fiduciary standard under the Advisers Act of 1940 governs the professional Relationship at all times.
- Provide a “reasonable basis” for advice in the best interest of the client.
- Communicate clearly and truthfully, both orally and in writing. Make all disclosures and agreements in writing.
- Provide, at least annually, a written statement of total fees and underlying expenses paid by the client. Include an accounting or good faith estimate of any payments to the advisor or the firm or related parties from any third party resulting from the advisor’s recommendations.
- Avoid all conflicts and potential conflicts. Disclose all unavoidable potential and actual conflicts. Manage or mitigate material conflicts. Acknowledge that conflicts of interest can corrode objective advice.
- Abstain from principal trading unless a client initiates an order to purchase the security on an unsolicited basis.
- Avoid significant gifts, third party payments, sales commissions, or compensation in association with client transactions that cannot be directly credited back to the client or managed as a fee offset.
- Ensure baseline knowledge, competence, experience and ongoing education appropriate for the engagement.
- Institute an investment policy statement (IPS) or an investment policy process (IPP) that is appropriate to the engagement and describes the investment strategy. Consistently follow and document a prudent process of due diligence to research and analyze investment vehicles; on request, document the prudent process applicable to any recommendation
- Have access to a broad universe of investment vehicles that provide ample options to meet the desired asset allocation and in consideration of widely accepted criteria.
- Consider peer group rankings in ensuring compensation and expenses are reasonable.
Stay tuned for more information on this valuable tool in helping to protect investor’s rights.