CPAs who provide investment
advice to their clients will be held to a
fiduciary’s civil standard of conduct. Thus, it is
prudent to know and understand best practices for
Organize your practice to provide
competent, objective advice to
the client’s satisfaction, starting with a
complete understanding and awareness of the duties
of a fiduciary adviser (including loyalty, due
care and full disclosure).
Know laws applicable to giving
investment advice, especially
the Investment Advisers Act of 1940, and whether
you are required to register with the SEC and/or
your state. If you determine you are not required
to register, document this decision with
Avoid self-dealing —any
activity that enriches you to the detriment of
your client—other than the fully disclosed fee you
are charging, of course. It is advisable that your
written agreement disclose that a lower fee for
the same services may be available elsewhere.
Make sure the roles and responsibilities
of all parties are clearly documented
in a written investment policy
statement. Put in writing all agreements and
contracts relating to the provision of investment
advice—including any existing or potential
conflicts of interest.
Document in the investment policy
statement the client’s time
horizon and risk tolerance, the expected long-term
return of the portfolio and the asset classes that
are consistent with the client’s needs and risk
Take time to know, evaluate and educate
your client. This doesn’t happen
quickly, and although a few clients may get
impatient, most will appreciate the time and
attention. You might meet several times with
clients over several weeks or longer before
deciding how to invest their money. If they are
anxious to get invested right away, ask them to
set aside a full day.
Be sure that you document why your
implementation choices are prudent,
ensure that investment vehicles
chosen are appropriate for the portfolio size, and
follow a due-diligence process in selecting the
investment managers, funds or securities, and the
If you are holding out to be a provider
of investment advice, the old sales model is
history. You can’t just make a
sale and move on to the next customer. If you are
an adviser, don’t call your clients “customers.”
That is a brokerage industry term. They are your
clients now. Be wary of charging a one-time fee.
Your responsibility continues until you and your
client agree that you are no longer responsible.
Periodically (generally at least once a
quarter) evaluate and report on investment
performance. Typically, these
evaluations involve a comparison of performance
against benchmarks agreed to in the client’s
investment policy statement.
Periodically review qualitative and
organizational changes of investment managers
and mutual funds. Also review
your firm’s and/or investment managers’ and funds’
policies for best execution, “soft dollars” and
proxy voting, and document that these have been
addressed and deemed acceptable. Document that all
fees are appropriate and reasonable.
Finally, put a process in place to
periodically review your firm’s effectiveness
in meeting these responsibilities.
The above points are based on Prudent
Practices for Investment Advisors . It and
a companion volume, Prudent Practices for
Investment Stewards , are published by
Fiduciary360, with review and comment by the
AICPA’s Personal Financial Planning Executive
Committee and its Fiduciary Task Force (see also
the Quality of Investment Advice,”
JofA, Jan. 04, page 37).
— Clark M. Blackman II,
CPA/PFS, CFA, CFP, is president and founder of
Alpha Wealth Strategies LLC in Kingwood, Texas,
and a member of the AICPA Fiduciary Task Force.
His e-mail address is Clark@AlphaWealthStrategies.com.
For more on Fi360 and the Prudent Practices
series, see www.fi360.com.