Failure to address suitability processes is in itself a breach of a regulatory fiduciary duty.

The integrity, transparency and accountability of the suitability process is where fiduciary duty matters most, and where its form, hegemony and influence reside.   Also, if payment and process are in conflict so is fiduciary duty.

Representing to investors that “advisors” have a fiduciary duty to deliver a best interests solution while retaining the current very limited suitability framework would risk misrepresenting the truth and lead investors to place even greater faith in a deeply flawed parameter to parameter suitability process. 

Anyone who has ever placed their clients’ interests first know that the provision of investment advice, discretionary or advisory,  depends on robust, for the “job at hand”, process components:

1.  A sound investment discipline that is clearly communicated to the client and that is followed rigorously.

2.  Sufficient resources, systems, expertise and research needed to deliver the portfolio construction planning and management process, including security selection and asset allocation, and communication of that process to the investor.  It is worth noting that advisory services, with some exceptions, are effectively delivering portfolio management.

3.  A rigorous fact find that records in detail the client’s current and future financial position likely to impact portfolio construction, planning and management.  The current KYC does not provide this necessary detail and is insufficient to support the existence of a fiduciary responsibility.  Outcomes from the current suitability process pose risks to clients’ financial security.

4.  A risk profiling approach that both educates the investor about investment risk and the risk profile of the investment discipline and process followed and that addresses investor risk preferences and biases so that an appropriate portfolio that intersects with the process and discipline, financial needs and risk and investment preferences is delivered.

The limitations, objectives and scope of a given service also needs to be communicated.  How you relate expected future inflows to and outflows from a portfolio, client risk preferences, investment discipline and current market and economic conditions to portfolio constriction planning and management, both at a point in time and over time, is dependent on the suitability process.

Limited parameter to parameter based suitability processes cannot deliver optimal best interest wealth management solutions where the investor can be informed over the generics, responsible for the decision but the adviser responsible for the integrity and transparency and accountability of their suitability processes.         

The suitability process is where fiduciary duty is born.  The suitability process encompassing all the wealth management components relevant to your service, is what the investor is paying for, and why it cannot be the transaction.  Retaining a commission based best interest platform is also obstructing proper pricing of the transaction, thereby impacting the evolution of fiduciary duty in the financial services industry.  If payment and process are in conflict so is fiduciary duty.  

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