In general, fiduciaries are responsible for protecting the assets of their clients. This means that a fiduciary must make sure his clients’ assets are not at risk. As money managers, fiduciaries can incur liability for failing to avoid conflicts of interest, provide proper disclosures, and keep funds from being improperly diverted or used as collateral without the client’s consent. Below is a list of steps from Hauser Insurance that an investment advisor should take to decrease fiduciary risks.
Increase The Transparency Level
An investment advisor should make his clients understand how their funds are being managed and what types of investments the money is invested in. According to Hauser Insurance, an investment manager must be honest with his clients, aside from avoiding conflicts of interests altogether.
Avoid Conflicts of Interest at All Costs
An investment advisor should make sure that there are no conflicts of interest between him and his clients. This means paying attention to the fine print and avoiding any situations where an investment advisor is in a position to give advice or take actions that may benefit himself over his clients.
Make Sure That Clients are Made Aware of All Fees and Compensation
When it comes to investment fees, there are both upfront charges and deferred fees. A fee-based advisor should avoid charging any secret or hidden fees on his clients’ accounts for them to be adequately informed about their investments. Fees and compensation must also be appropriately disclosed. Everyone should know what money managers are getting paid upfront and how the compensation is derived from their client’s accounts and outside sources.
Get a Good Contract That Protects You as Well as Your Clients
A written investment advisory agreement includes all terms between an advisor and their client. The agreement should include the investment objectives of an advisor and his client and how funds are managed. An investment advisory contract should also contain dispute resolution procedures in case there is a disagreement between both parties at some point. You should also remember not to sign any agreements that you cannot fully understand or agree with, including terms and conditions.
In conclusion, being a fiduciary according to Hauser Insurance means that you must act for the benefit of others without any preferential treatment. This includes taking all necessary precautions to avoid conflicts of interests or other situations that may put your clients’ assets at risk.