What is the Current Fiduciary Standard?

All investment advisers are bound to a fiduciary standard that is regulated by the Securities and Exchange Commission (SEC) or state securities regulators. These standards hold advisers to a fiduciary standard that requires them to always put their client’s interests above their own.

The standard consists of a duty of loyalty and care. For example, advisers cannot buy securities for their accounts prior to buying them for clients and are prohibited from making trades that may result in higher commissions for themselves or their investment firms. It also means advisers must do their absolute best to ensure investment advice is made using accurate information and that the analysis is thorough as possible. Below is an overview of the Certified Financial Planner (CFP) Board’s Code of Ethics and Standards of Conduct’s rulemaking package.

The Code of Ethics Outlines the Integrity Expectations of a Certified Financial Planner

The CFP Board’s Code Of Ethics States:

  • Act with honesty, integrity, competence, and diligence.
  • Act in the client’s best interests.
  • Exercise due care.
  • Avoid or disclose and manage conflicts of interest.
  • Maintain confidentiality and protect the privacy of client information.
  • Act in a manner that reflects positively on the financial planning profession and CFP certification.

You can read more about the CFP’s Code of Ethics here.

The SEC Issued a Standards of Conduct That Outlines Duties Owed to Client

Recently, after two decades of deliberation, the SEC issued a Standards of Conduct rulemaking package. The issued package is intended to raise the standard of conduct for broker-dealers, reaffirm the fiduciary duty under the Investment Advisers Act, and reduce investor confusion as to the services offered by financial professionals that serve retail investors.

The Four Parts to the Rulemaking Include:

  • Advisers Act Fiduciary Duty Interpretation for Investment Advisers
  • Regulation Best Interest (Reg BI) for broker-dealers when they make recommendations to retail customers, intended to strengthen the broker-dealer standard of conduct
  • Form CRS (Part 3 of Form ADV to be delivered to retail investors), required for investment advisers, broker-dealers, and dually-registered firms
  • Solely Incidental Interpretation regarding the broker exclusion from the definition of investment adviser

The focal point of the package, Regulation Best Interest, includes improved investor protection measures for customers of broker-dealers. RBI requires that brokers act in the best interest of their customers at the time of a recommendation, without placing the broker’s financial or other interests ahead of the interests of the client. The new standard is satisfied if the broker satisfies specified disclosure, care, conflicts, and compliance obligations. The RBI standard applies only to the moment that a transaction is recommended, while the fiduciary duty applies throughout an adviser’s relationship with their clients. Because of this, it is critical that customers understand whether they are hiring an adviser or a broker and what that engagement entails. Investors should be careful to understand what exact services are agreed to by the broker and what obligations the broker has when it recommends a security or investment strategy to a customer.

The Financial Planners at Fiduciam Wealth Planning Continue to Monitor Fiduciary Standards and SEC Regulations

In addition to the SEC rulemakings, Fiduciam Wealth Planning is monitoring all regulatory developments when it comes to the fiduciary standard. When we work with our clients, our number one priority is to uphold the current fiduciary standard and the CFP Board’s Code of Ethics with every step of our financial planning services. To learn more, contact our Towson office today.