With fiduciary standards in sharp focus across the wealth management industry, the Institute for the Fiduciary Standard has developed a self-assessment tool advisors can use to evaluate whether their practice adheres to a best-interest standard that puts clients' interests first.
The institute is issuing the tool to help advisors benchmark their activities against the fiduciary best practices the organization has been developing.
Knut Rostad, president of the IFS, says that the tool was developed internally and also drew on input from the National Association of Personal Financial Advisors, a trade group representing fee-only planners that has advocated for stronger fiduciary standards.
The self-assessment document asks advisors to affirm that they take a number of actions to adhere to the fiduciary standards that the institute promotes.
For instance, the first item calls on advisor to affirm that the standard set forth in the 1940 Investment Advisers Act and common law principles "govern all professional advisory client relationships at all times."
The tool arrives as firms still absorb the new fiduciary rules for retirement advisors issued by the Department of Labor. The head of the SEC, meanwhile, recently said that staffers at the agency are continuing work on a uniform standard that would extend fiduciary obligations to broker-dealers.
EVIDENCE OF COMPLIANCE
With the institute's best practices, the organization is looking to establish a voluntary code of conduct that could eventually take the form of a professional designation, a sort of credential that advisors could use to promote their adherence to providing clients with best-interest advice.
In addition to the commitment to adhere to the 40 Act fiduciary principles, the self-assessment tool calls on advisors to establish and document a "reasonable basis" for the recommendations they make, and to make it available to clients in writing. The evaluation also asks advisors to affirm that they "communicate clearly and truthfully, both orally and in writing," and provide written disclosures and a statement of all compensation.
Advisors are further expected to avoid conflicts whenever possible, and to refrain from principal trading "unless a client initiates an order to purchase the security on an unsolicited basis."
The institute is soliciting comments on the self-evaluation tool from interested parties for 30 days.
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