The Institute for the Fiduciary Standard Recognizes Fiduciary September with New Program, New Research

Every September since 2012, The Institute for the Fiduciary Standard recognizes “Fiduciary September” to raise investor awareness of the fiduciary standard and what it means for them. This year’s theme focuses on ‘Raising the Standard, Delivering the Promise’ following the DOL Fiduciary Rule passed earlier this year that demands investor-centric advice.

As part of Fiduciary September, the Institute released research that highlights significant differences among registered investment advisors (RIAs) and shows how investors can better understand these differences by identifying key information in their advisor’s Form ADV (the form advisors file with the SEC that includes data about the size, scope and nature of the business). As a result of this research, the Institute also announced its Fiduciary Advisor Affirmation Program, of which WE Family Offices is a part. The program requires participating advisors to adhere to a strict set of best practices and helps them differentiate themselves in the industry.

The research: Not all RIAs are created equal
The research examined the Form ADVs of nine large financial services firms and135 registered investment advisors with between 250 mm and 164,000 mm AUM. The goal of the research was to identify areas of commonality and differences among the RIAs and then, separately, between RIAs and the large financial services firms’ advisors.

More conflicts of interest were found among the large financial institutions than the RIAs included in the research. More surprisingly, however, is the conclusion that conflicts of interest are increasing among RIAs, which operate independently and are held to the fiduciary standard. For example, the research revealed that 35% of the RIAs report employees who are registered representatives of a broker-dealer and 39% report an employee who licensed agents of an insurance company or agency. Not included in the data is how well the firm manages these conflicts of interest, but it does raise the question of what impact their sales efforts may have on objective advice.

Fiduciary Advisor Affirmation Program
Following the release of its findings, the Institute unveiled its Fiduciary Advisor Affirmation Program for RIAs. Through this program, fiduciary advisors will be better able to demonstrate how they serve clients’ best interests – and investors will be better able to identify such advisors.

The Fiduciary Advisor Affirmation Program is based on the Institute’s “Best Practices” statement of Professional Code of Conduct and defines tasks that are not required by other advisor groups to ensure truly client-focused service. These best practices include:

  1. Affirm the fiduciary standard under the Advisers Act of 1940, common law and, if applicable, ERISA and DOL’s COI Rule, govern all professional advisory client relationships at all times.
  2. Establish and document a “reasonable basis” for advice in the best interest of the client.
  3. Communicate clearly and truthfully, both orally and in writing. Do not mislead. Make all disclosures and important agreements in writing.
  4. Provide a written statement of total fees and underlying investment expenses paid by the client. Include any payments to the advisor or the firm or related parties from any third party resulting from the advisor’s recommendations.
  5. Avoid conflicts and potential conflicts. Disclose all unavoidable potential and actual conflicts. Manage or mitigate material conflicts. Acknowledge that material conflicts of interest are incompatible with objective advice.
  6. Abstain from principal trading unless a client initiates an order to purchase the security on an unsolicited basis.
  7. Avoid compensation in association with client transactions. If such compensation is unavoidable, demonstrate how the conflict is managed and overcome and the product recommendation and compensation serves the client’s best interest.
  8. Avoid gifts or entertainment that are not minimal and not occasional. Avoid third party payments, “benefits” and indirect payments that do not generally benefit the firm’s clients and may reasonably be perceived to impair objectivity.
  9. Ensure baseline knowledge, competence and ongoing education appropriate for the engagement.
  10. Institute an investment policy statement (IPS) or an investment policy process (IPP) that is appropriate to the engagement and describes the investment strategy. Have access to a representative universe of investment vehicles that provide ample options to meet the desired asset allocation in consideration of generally accepted criteria.
  11. Consider peer group rankings or apply specific procedures in ensuring underlying investment expenses are reasonable.
  12. The advisor affirms in writing adherence to Best Practices, and attains written affirmation from the firm that these business practices may be met by the advisor.

Advisors who participate in the Fiduciary Advisor Affirmation Program will be required to include these best practices on their website and a disclosure in their legal filing with the Securities and Exchange Commission describing the firm’s business (known as the Form ADV).

“Now more than ever, clients are demanding conflict-free, independent financial advice” said Michael Zeuner, founding member of The Institute for the Fiduciary Standard and managing partner of WE Family Office. “Not only adhering to but clearly communicating these best practices is an important step an advisor can take to differentiate themselves among independent advisors and build trust with their clients.”

Complementing the Campaign for Investors
The Institute’s advisor-focused “Affirmation” program complements its Campaign for Investors, a national initiative launched in May to raise awareness of the Fiduciary Standard in light of the recently passed DOL fiduciary rule on retirement plans. The group, while acknowledging that the legislation is but a first step in the right direction, launched the Campaign for Investors to provide resources and information to investors seeking a financial advisor, or asking questions about the financial advice they are receiving.

More information:

About Fiduciary September

About the Research – What Investors Can Learn About An Advisor’s Conflicts in Form ADV

About the Fiduciary Advisor Affirmation Program