Jon Henschen's article, "Whose Fiduciary Standard Are You Using?" we examine potential conflicts of interest that include Proprietary Advisory Platforms, Forgivable Transition Notes, Advisory Administration Fees and Markups on Third-Party Money Manager Management Fees.
MINNEAPOLIS, May 2, 2022 /PRNewswire-PRWeb/ -- Featured April 27th 2022 in FinancialAdvisor Magazine independent broker dealer recruiter Jon Henschen's "Whose Fiduciary Standard Are You Using?" outlines whether advisors are following a CFP standard or a Reg BI standard, there are conflicts that often fall through the cracks—things the advisors often miss. He goes in detail to examine four conflicts that are often overlooked: proprietary advisory platforms, forgivable transition notes, advisory administration fees and markups on third-party money managers' management fees.
Henschen opens his discussion with, "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. 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."
Henschen also notes that those holding the designation of CFP mark holders have three core duties:
1. The duty of care.
2. The duty of loyalty.
4. The duty to follow client instructions.
He says, "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. But whether the advisors are following a CFP standard or a Reg BI standard, there are conflicts that often fall through the cracks—things the advisors often miss. Here we're going to examine four conflicts that are often overlooked: proprietary advisory platforms, forgivable transition notes, advisory administration fees and markups on third-party money managers' management fees."
Proprietary advisory platforms, Henschen explains, both broker-dealer RIAs and large producer groups offering their own proprietary managed advisory programs. These are their primary profit centers. Yet if you give an advisor a 100% payout for a product that comes from your firm's proprietary platform—while paying less for something from another advisory platform—that's a conflict of interest. Broker-dealer RIAs do this. So do some independent RIAs.
Broker-dealers use markups on third-party manager fees to help themselves pay for their large forgivable transition notes. But this can cost clients dearly. The markup (which the firm may refer to as a "marketing reallowance") can overrun the original manager's charge by as much as 10 to 50 basis points. Advisory departments may claim the charge is for ongoing due diligence on the money manager, but the reality is that it's all profit. The markup, is not charged on the firms' proprietary asset management platforms—only on non-proprietary ones. And that's a conflict of interest. Not all broker-dealer RIAs do it, but an increasing number have added the fees, which are more pronounced at larger broker-dealer RIAs.
Henschen shows that it's hard to adhere to a fiduciary standard when dealing with such opaque costs. "You don't know what the large checks being waved in your face represent—since how they are being paid for is muddled at best. You don't know what your alternative options are in the marketplace. But it's imperative to know what the conflicts are if you want to adhere to the standard, especially if you are a CFP with a legal obligation. That standard has been required by the CFP Board for client investments since June 2020, and those who run afoul of it risk disciplinary action by the board. In the future, you must be hypervigilant about these conflicts and the better options available to you and your clients."
Jon Henschen is founder of http://www.henschenassoc.com, an independent recruiting firm focused on independent broker dealers and RIAs based in Marine on St. Croix, MN. With more than 30 years of industry experience, Jon is a staunch advocate for independent financial advisors, and is widely sought after by both advisors, broker dealers and RIAs for his expertise and insight on industry topics. He is frequently published and quoted in a variety of industry sources, including Wealth Management, ThinkAdvisor, Investment Advisor Magazine, Wealth Management Magazine, Financial Advisor IQ, Financial Advisor Magazine, Investment News and others.
Media Contact
Cristi Barkley, Henschen & Associates, 7578454107, [email protected]
SOURCE Henschen & Associates
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