What does a fiduciary duty really mean for an independent investment advisory firm?
Basically, it means that the advisor owes its clients undivided loyalty. The duty of loyalty is typically met by a well-defined conflict of interest policy that clearly articulates a process for dealing with conflicts of interest. A few points included in an advisory firm’s conflict of interest policy are:
- Act in a position of trust and fiduciary responsibility to clients and do nothing to violate that trust.
- Act with competence, use reasonable care, and exercise independent professional judgment.
- Exercise independence while making investment decisions for clients.
- Act in the best interest of a client by placing the client’s interests before the advisor’s interests.
On the last point, unlike our bank and brokerage friends, independent Registered Investment Advisory (RIA) firms not only have to make recommendations that are suitable but also in their client’s best interest. “Suitable” means asking the question: Is the investment appropriate given the risk tolerance of the institution or individual? “Best interest” means the investment must be in the best interest of the client without regard to the financial or other interests of the advisor or its firm.
Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.
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