by Jon Henschen article, “Which fiduciary standard do you use? » We review potential conflicts of interest that include proprietary advisory platforms, forgivable transition ratings, advisory administration fees, and third-party fund manager management fee mark-ups.
MINNEAPOLIS, May 2, 2022 /PRNewswire-PRWeb/ — Featured April 27 2022 in FinancialAdvisor Magazine independent broker recruiter by Jon Henschen “What fiduciary standard do you use?” indicates whether advisors follow a CFP standard or a Reg BI standard, there are conflicts that often slip through the cracks – things that advisors often miss. It examines in detail four oft-overlooked conflicts: proprietary advisory platforms, redeemable transition notes, advisory administration fees, and third-party fund manager management fee mark-ups.
Henschen opens his discussion with these words: “Securities and Exchange Commission regulations are not only confusing for clients. They are also confusing for financial advisers. One adviser told me that he now adheres to a standard fiduciary because of this regulation.While regulation requires advisors to put the interests of clients before their own when dealing with securities, a true fiduciary standard requires you to put clients first at all times. It is not limited to the time and date of a particular transaction.
Henschen also notes that holders of the CFP Mark Holder designation have three primary duties:
1. The duty of care.
2. The duty of loyalty.
4. The duty to follow the client’s instructions.
He says: “These obligations do not end with a securities transaction. They are valid at all times, unlike Reg BI, which only applies when a recommendation is made to a client. The code of CFP standards goes beyond, covering all financial assets, as well as other aspects of a client’s financial world, such as tax strategies and insurance recommendations, which Reg BI does not concern. advisors follow a CFP standard or a Reg BI standard, there are conflicts that often slip through the cracks, which advisors often miss.Here we will look at four conflicts that are often overlooked: proprietary advice, forgivable transition ratings, advice administration fees, and third-party fund manager management fee mark-ups.”
Proprietary advisory platforms, says Henschen, both brokerage RIAs and large grower groups offering their own proprietary managed advisory programs. These are their main profit centers. Yet, if you pay an advisor 100% for a product from your company’s proprietary platform, while paying less for something from another advisory platform, that’s a conflict of interest. This is what broker-dealer RIAs do. So make some independent RIAs.
Brokers use mark-ups on third-party management fees to help pay their large, forgivable transition bills. But that can be expensive for customers. The markup (which the company may call a “marketing reallocation”) can exceed the original manager’s fee by 10 to 50 basis points. Advisory departments may claim that the fees are related to the ongoing due diligence of the fund manager, but the reality is that it’s all for profit. The markup is not charged on companies’ proprietary asset management platforms, only on non-proprietary platforms. And that’s a conflict of interest. Not all broker RIAs do this, but an increasing number have added fees, which are more pronounced in larger broker RIAs.
Henschen shows that it is difficult to adhere to a fiduciary standard in the face of such opaque costs. “You don’t know what the big checks that are waved in your face represent because how they are paid is confusing at best. You don’t know what your alternative options are in the market. But it’s imperative to know what that the conflicts are if you want to adhere to the standard, especially if you are a CFP with a legal obligation. This standard has been required by the CFP Council for client investments since June 2020, and those who oppose it expose themselves to disciplinary sanctions on the part of the board of directors. Going forward, you’ll need to be hypervigilant about these conflicts and the best options available to you and your customers.”
Jon Henschen is the founder of http://www.henschenassoc.com, an independent recruitment firm focused on independent brokers and RIAs based in Navy in St. Croix, MN. With over 30 years of industry experience, Jon is a strong advocate for independent financial advisors and is widely sought after by advisors, brokers and RIAs for his expertise and insight into industry topics. He is frequently published and quoted in various industry sources including Wealth Management, ThinkAdvisor, Investment Advisor Magazine, Wealth Management Magazine, Financial Advisor IQ, Financial Advisor Magazine, Investment News and others.
Cristi BarkleyHenschen & Associates, 7578454107, [email protected]
SOURCE Henschen & Associates