“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.”