Our Fiduciary Standards
Our Fiduciary Standards
*We are the only member in the state of Arizona.
Real Fiduciary Practices: Professional Conduct Guidance for Advisors
(February 22, 2019)
Best Practices are professional conduct standards that outline what the Board believes fiduciary advisors should do for clients. Here, each Best Practice is listed and described in italics below it. The practices seek to uphold a high standard of transparent and objective advice. A firm subscribing to Best Practices affirms with these actions, to:
- Act as a fiduciary at all times. Affirm this commitment to the client in writing.
Affirm that the fiduciary standard under common law and the Investment Advisers Act of 1940 (and when applicable, ERISA) governs all professional advisory client relationships at all times at both the advisor and the firm level.
- Decline any sales-related compensation.
Accept compensation that is paid by the client in the form of a percentage of assets under management, retainers, fixed fees or hourly fees. Decline any compensation associated with transactions and product sales such as commissions, shelf space payments and 12b-1 fees.
- Avoid conflicts of interest.
Understand that a conflict of interest occurs when the interests of the advisor or the advisor’s firm interfere with the advisor’s fiduciary duties to clients. A conflict is material when it could reasonably be deemed to affect how a client who understands the conflict decides to act. Material conflicts are inherently harmful. Eliminating or avoiding these conflicts when possible has been the cornerstone of fiduciary law for centuries.
- Mitigate unavoidable conflicts.
Mitigating material conflicts means, at minimum, receiving appropriate client consent before executing the recommendation. The advisor will:
- Explain the conflict in sufficient detail, both orally and in writing, so the client fully understands the conflict. Disclosure of conflicts of interest is a well-established obligation of the Investment Advisers Act of 1940 and a key requirement of Form ADV.
- Ensure that the client understands the implications of the conflict. This includes the relative merits of options not recommended by the advisor and any additional compensation that may be earned by the advisor.
- Receive informed, intelligent and independent consent from the client in writing before any advice is implemented.
- Document and be prepared to demonstrate that the conflicted advice remains reasonable and fair and consistent with the client’s best interest.
ACT WITH DUE CARE
- Maintain professional knowledge and competence.
Demonstrate baseline competence by holding a recognized designation which requires significant study and knowledge, experience and ongoing continuing education requirements, such as the CFP®, CPA/PFS or CFA designations. Decline to provide advice, regardless of its scope, unless the advisor possesses the appropriate expertise.
- Explain agreements and disclosures clearly and truthfully, both orally and in writing.
Put all important client agreements and disclosures in writing. Do not make oral or written statements that are misleading. Client understanding of the advisor’s actions is important in relationships of trust and confidence.
- Establish and document a reasonable basis for advice.
Document relevant facts and circumstances supporting the advisor’s advice in a manner that is appropriate for the scope and nature of the client engagement and for the client’s goals and overall circumstances. Upon client request, provide a brief summary written in plain language of each recommendation and its respective reasonable basis. Having a “reasonable basis” for investment advice is a well-established obligation of the Investment Advisers Act of 1940.
- Follow and document a prudent due diligence process for rendering investment advice.
Research and analyze investment vehicles in a responsible manner. Use an investment policy statement that is based on a clear understanding of the client’s circumstances and preferences and that clearly specifies assumptions regarding objectives, risk, and performance. Report performance based on data supplied by an independent third party and calculated using industry standard methods.
ACT IN UTMOST GOOD FAITH
- Decline gifts or entertainment or other benefits unless minimal in value, occasional in
frequency, and consistent with the advisory firm’s gift and vendor relation policies.
Decline any gifts or third-party compensation or other benefits received by the advisor or the advisor’s firm that could impair advisor objectivity. Upon request, provide the firm’s policy on gifts and entertainment. Explain clearly, both orally and in writing, any ongoing benefits the advisor or the advisor’s firm receives from other entities.
- Charge reasonable fees and incur reasonable investment costs. Disclose and fully explain.
Provide in writing at the outset of the advisory relationship, and upon request throughout the client engagement, a good faith description and estimate of anticipated fees, investment costs and tax implications. Have procedures to check that client expenses are reasonable. Be aware that controlling investment expenses does not require the least expensive alternative; it does require a reasonable basis for selecting a more expensive alternative.
NOTE: These practices and their guidance comprise the Real Fiduciary Practices. For additional guidance on the practices see the practices with background endnotes at: https://thefiduciaryinstitute.org/wp-content/uploads/2019/03/Real-Fiduciary-Practices-2019-02-22.pdf