This article originally appeared on FA Mag by Jon Henschen
The Securities and Exchange Commission’s Regulation Best Interest is not only confusing to clients. It’s confusing to financial advisors as well. One advisor told me that he now adheres to a fiduciary standard because of this regulation.
My response: “Well, not really!”
While the regulation requires advisors to put clients’ interests ahead of their own at the time of a securities transaction, a true fiduciary standard asks you to put clients ahead at all times. It’s not limited to the time and date of a particular trade.
Take a group whose view on the matter is likely more orthodox: CFP mark holders. Those holding the designation have three core duties:
- The duty of care. They must act with the care, skill, prudence and diligence that a prudent professional would exercise in light of a client’s goals, risk tolerance, objectives and personal circumstances.
- The duty of loyalty. They place the interests of their clients above the interests of themselves and their firms, avoiding conflicts of interest, disclosing to the client any material conflicts that do emerge, obtaining the clients’ informed consent and properly managing conflicts.
- The duty to follow client instructions. CFP mark holders are required to comply with the objectives, policy restrictions and other terms of engagement for dealing with clients and all the reasonable and lawful directions of the client.
These obligations don’t stop and end with a securities transaction. They stand at all times—unlike Reg BI, which only applies at the time a recommendation is made to a client. The CFP code of standards goes beyond, covering all financial assets—as well as to other aspects of a client’s financial world, like tax strategies and insurance recommendations, that Reg BI has no interest in.
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Read the full article at FA Mag
