• April 2015

Best Practices Proposed for Advisers and Brokers Seeking to Meet True Fiduciary Standard

To return to traditional values of fiduciary duty, on Jan. 29, the Institute for the Fiduciary Standard issued 11 best practices that propose to address the standards that fiduciaries should meet to serve the best interest of their clients.

“These best practice standards would go a long way toward protecting the public and cleaning up the industry of ‘bad actors’ and bad practices,” says Bryan D. Beatty, CFP®, AIF,® a partner of Egan, Berger & Weiner, LLC. Beatty (pictured here) is one of five advisers on the Institute’s Best Practices board, which crafted the standards over 10 months.

“Putting clients’ interests first is paramount to a fiduciary standard. Advisers and practitioners must lead the way and not wait for regulators,” Beatty said. “I believe that by adopting these best practices, we can change the industry to better benefit the investing public.”

The president of the Institute for the Fiduciary Standard, Knut A. Rostad, MBA, AIF®, observed that “so many investors today are confused, or skeptical, or downright distrustful of financial professionals — even fiduciaries. Investor misconceptions about who’s selling products and who’s offering advice, and what they pay, are pervasive.”

The new best practices, he said, are designed “to help investors identify true fiduciaries committed to objectivity, transparency, and plain English communications.” Rostad is also on the Institute’s Best Practices board.

“Not since the 1930s have investors so mistrusted their advisers,” said Boston University Professor Tamar Frankel. He and Vanguard’s Bogle are part of a separate group that advises the Best Practices board in its deliberations. “Advisers must take this mistrust seriously. The time has come for advisers to publicly explain how they are committed to fiduciary principles in the service of their clients,” he said.

“The ‘Best Practices’ proposal of the Institute for the Fiduciary Standard is an important first step,” Bogle said.

The 11 Best Practices

  1. Affirm that the fiduciary standard under the Advisers Act of 1940 governs the professional relationship at all times.
  2. Provide a “reasonable basis” for advice in the best interest of the client.
  3. Communicate clearly and truthfully, both orally and in writing. Make all disclosures and agreements in writing.
  4. 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 adviser or the firm or related parties from any third-party resulting from the adviser’ s recommendations.
  5. 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.
  6. Abstain from principal trading unless a client initiates an order to purchase the security on an unsolicited basis.
  7. 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.
  8. Ensure baseline knowledge, competence, experience, and ongoing education appropriate for the engagement.
  9. 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.
  10. 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.
  11. Consider peer group rankings in ensuring compensation and expenses are reasonable.

New Procedures Will Verify Compliance With the New Standards

The Institute is working with outside experts to develop procedures to verify that an adviser or broker meets the best practices. According to James J. Green at ThinkAdvisor, Brian Hamburger, chief counsel to the Best Practices board, said that the Institute will “work on a verification model for testing to the standard,” conferred by a third party. While that verifying third party has yet to be decided, Green said Rostad suggested that such verification might well take the form of a separate certification for advisers who follow the best practices.

The Institute invited public and industry comments on the best practices, and its final principles are expected to be released by midsummer.

For More Information


About Bryan D. Beatty, CFP®, AIF®
Partner of Egan, Berger & Weiner LLC

  • 22 years of experience in the financial industry as the principal of an independent financial services firm specializing in all aspects of investment and retirement planning.
  • Graduate of University of Maryland, with a BS in finance; former president of the Finance, Banking and Investment Society.
  • CERTIFIED FINANCIAL PLANNER™ practitioner.
  • Active member of the Financial Planning Association’s Career Development and College Outreach Committees.
  • An avid lifelong musician, Beatty plays guitar and writes music in his spare time and occasionally plays area venues. Originally from Baltimore, MD, Beatty has lived in Northern Virginia since 1992.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Securities and investment advisory services offered through Voya Financial Advisors, member SIPC. Egan Berger & Weiner is not a subsidiary of nor controlled by Voya Financial Advisors.

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