The Institute for the Fiduciary Standard has rolled out 12 best practices for financial advisors to follow and also announced its next step of creating a bill of rights for investors.

These best practices are designed to address trust problems that exist in the industry.

“Advisors need to raise the bar to win back distrustful investors, and that’s what we are aiming to do,” said Knut Rostad, president and co-founder of the institute, speaking at a press breakfast in Midtown Manhattan on Wednesday, when the new initiatives were announced.

“Under the National Association of Personal Financial Advisors code of ethics, many of these best practices have been embodied in our fiduciary principles since 1983,” said Dave O’Brien, a Midlothian, Va.-based RIA and chair of the NAPFA Public Policy Committee. “But there are a couple particular processes that are articulated here, especially around reporting, that would be new.”

Best Practices No. 4 is expected to be among the most challenging for advisors. It recommends they provide a written statement of total fees and underlying investment expenses paid by the client.

“In order to generate reports, either you have to do the accounting or you have to pay someone else to do the accounting, or you buy software programs,” said Bryan Beatty, a member of the Best Practices Board and a financial advisor with Egan, Berger & Weiner in Vienna, Va.

Such a statement would also include any payment to the advisor, the firm or related parties from any third party resulting from an advisor's recommendation.

“There are software packages you can buy off the shelf by subscription service that you can use in your practice,” Beatty said, “and if you put your investments in them, it will generate reports to clients with your fees and you can add your fee on top of that.” Such programs include Portfolio Express and the Morningstar Advisor Workstation.

“It’s possible to disclose,” said Beatty. “It’s not that expensive. The idea of practices is that we will self-report to show that we are living up to the best standards of practice.”

In implementing reporting that would create more transparency, advisors have expressed some concern about potential lawsuits. However, Brian Hamburger, the general counsel to the institute’s Best Practices Board, believes providing clear disclosure and investment guidelines, such as an investment policy statement, would only create liability if advisors don’t work within them.

“If you have the systems in place to support these best practices, to do what you say you’re going to do, it mitigates liability,” said Hamburger, who is also the president and CEO of MarketCounsel in Englewood, N.J., a business and regulatory compliance consulting firm to advisors.

Another best practice advisors are expected to grapple with is No. 7, which recommends they avoid compensation in association with client transactions. If such compensation is unavoidable, the advisors should demonstrate how the conflict is managed and overcome.

“As a fiduciary,” said Michael Zeuner, co-founder of the institute and managing partner with WE Family Offices, “you have to avoid those income streams from the product manufacturers and only take fees from clients. Therefore, you potentially earn less money.”

Currently, it’s the predominant industry model to accept multiple streams of payment, not only from the investors advisors are selling to but also from fees asset managers offer for selling and distributing product.

“It’s more lucrative and more profitable for an investment advisor to not adhere to fiduciary standards and to have multiple income streams being paid not only by their clients but by the people whose products they are selling and distributing,” Zeuner told Financial Advisor.

But it’s also double dipping.

"Sometimes, the advisor is selling product that’s inappropriate, that [involves] high fees, that are misaligned or a conflict of interest,” said Zeuner. “If they were to let go of these multiple streams, advisors would need to serve more clients in the right way.”

Best practice No. 6 recommends abstaining from principal trading unless a client initiates an order to purchase the security on an unsolicited basis. No. 9 recommends that advisors ensure baseline knowledge, competence and ongoing education appropriate for the engagement.

“I believe that for consumers of financial services to be better informed, they need something that is easy to understand so that they can ask better questions,” O’Brien said to Financial Advisor. “It’s all about informed consent.”