Managing Fiduciary Compliance

Managing Fiduciary Compliance

Evaluates advisory practices against fiduciary standards, identifies conflicts of interest, and documents compliance with duty-of-care and duty-of-loyalty obligations across investment advisory, ERISA, and trust fiduciary frameworks.

When To Use

• Assessing whether an RIA, broker-dealer, or plan fiduciary meets applicable fiduciary standards
• Reviewing conflict-of-interest inventories and disclosure adequacy (Form ADV Part 2A, Form CRS, 408(b)(2) disclosures)
• Evaluating compensation structures, revenue-sharing arrangements, or proprietary product usage for fiduciary risk
• Preparing for SEC examination readiness or DOL fiduciary audits
• Documenting best-interest determinations under Reg BI or the DOL fiduciary rule
• Reviewing ERISA plan sponsor oversight of service providers and fee reasonableness

Inputs To Gather

• Entity type and registration status: RIA, dual-registrant, bank trust department, ERISA plan fiduciary, or private trustee
• Applicable fiduciary standard: Investment Advisers Act §206, ERISA §404/§406, state trust codes, Reg BI (for dual-registrants) [VERIFY jurisdiction-specific standards]
• Conflict inventory: All material conflicts including proprietary products, affiliate transactions, soft-dollar arrangements, revenue sharing, 12b-1 fees, principal trading
• Disclosure documents: Form ADV Parts 1/2A/2B, Form CRS, ERISA 408(b)(2) service provider disclosures, trust account disclosures
• Compensation and fee schedules: Advisory fees, wrap fees, commissions, performance fees, transaction-based charges
• Client/beneficiary profile: Account types, investment mandates, risk tolerances, ERISA plan type (defined benefit vs. defined contribution)
• Policies and procedures: Compliance manual sections on conflicts, trading, allocation, best execution, proxy voting, gifts/entertainment
• Prior examination findings: SEC deficiency letters, DOL investigation results, internal audit reports

Workflow

1. Determine fiduciary framework

   • Classify the entity's fiduciary status (federal vs. state, statutory vs. common law)
   • Identify which standard applies: Advisers Act (SEC), ERISA (DOL), state UPIA/UTC, or Reg BI hybrid [VERIFY applicable regulatory regime]
   • Note any exemptions or safe harbors (e.g., ERISA §408 prohibited transaction exemptions, QPAM exemption)

2. Map conflicts of interest

   • Catalog all compensation sources and economic incentives that could bias recommendations
   • Classify each conflict by severity: inherent (must disclose), manageable (mitigate and disclose), or prohibited (must eliminate)
   • Cross-reference conflicts against current disclosure documents for completeness gaps
   • Flag undisclosed or inadequately disclosed conflicts

3. Evaluate duty-of-care compliance

   • Assess investment due diligence processes: research, selection criteria, monitoring frequency
   • Review suitability/best-interest documentation for representative client accounts
   • Check best-execution practices: broker selection, trade cost analysis, soft-dollar compliance (§28(e) safe harbor if applicable)
   • Evaluate proxy voting policies and record-keeping

4. Evaluate duty-of-loyalty compliance

   • Review fee reasonableness relative to services provided and industry benchmarks
   • Examine proprietary product allocation rates and whether open-architecture alternatives were considered
   • Assess principal and agency cross-trading controls [VERIFY SEC no-action letter requirements]
   • Review gift, entertainment, and political contribution policies for adequacy

5. Assess disclosure adequacy

   • Compare conflict inventory against Form ADV Part 2A Item 10/11/12/14 disclosures
   • Evaluate Form CRS relationship summary for accuracy and plain-language clarity
   • For ERISA fiduciaries, verify 408(b)(2) and 404a-5 participant disclosure compliance [VERIFY current DOL disclosure requirements]
   • Identify gaps between actual practices and written disclosures

6. Document findings and remediation plan

   • Prioritize findings by regulatory risk (examination risk, enforcement risk, litigation risk)
   • Assign remediation owners, deadlines, and verification steps
   • Track policy/procedure updates required and disclosure amendment timelines

Output

The fiduciary compliance report should include:

• Executive summary: Overall compliance posture rating (satisfactory, needs improvement, deficient) with key risk areas highlighted
• Fiduciary framework classification: Applicable standards, registration status, and exemptions relied upon
• Conflict inventory matrix: Each conflict listed with severity rating, current mitigation measure, disclosure reference, and gap assessment
• Duty-of-care findings: Investment process adequacy, best-execution compliance, documentation sufficiency
• Duty-of-loyalty findings: Fee reasonableness analysis, proprietary product review, prohibited transaction assessment
• Disclosure gap analysis: Side-by-side comparison of actual practices versus current disclosure language
• Remediation tracker: Prioritized action items with owners, deadlines, and regulatory risk ratings
• Examination readiness score: Assessment of preparedness for SEC or DOL examination on fiduciary topics

Quality Checks

• Every identified conflict has a corresponding disclosure reference or is flagged as a gap
• Fee reasonableness analysis uses current industry benchmark data, not outdated comparisons
• Fiduciary standard citations reference the correct statutory authority for the entity type [VERIFY specific Code/CFR sections]
• Prohibited transaction analysis distinguishes between structural exemptions and individual exemptions
• ERISA findings clearly separate plan-level fiduciary duties from participant-level obligations
• Remediation items are specific and actionable — not generic recommendations like "improve compliance"
• Report distinguishes between regulatory requirements (must do) and best practices (should do)
• All jurisdiction-dependent conclusions are marked with [VERIFY] for legal review