"Prudent Practices for Investment Advisors" Published

A Press Release entitled "AICPA/fi360 Publishes Handbook for Investment Advisors", posted on February 7, 2008, by SmartPros, announced that the American Institute of Certified Public Accountants (AICPA) and Fiduciary360 (fi360) have collaboratively published the U.S. edition of a handbook for investment advisors.

The Prudent Practices for Investment Advisors handbook adapts the Prudent Practices for Investment Fiduciaries, defined by the Foundation for Fiduciary Studies, to provide a framework for a disciplined investment process specific for investment advisors.

The handbook identifies 23 practices for investment practitioners and addresses many ethical and professional requirements.

The handbook arranges the practices into a four-step investment management process: organize, formalize, implement and monitor.

The AICPA and fi360 said the handbook provides a competitive advantage because investment practitioners are adhering to a defined fiduciary standard of excellence.

The handbook assists them in managing risk through a recommended "checklist" process that helps ensure investment decisions are carried out with prudence and due diligence. * * * [Links added.]

A press release issued by the AICPA on February 6, 2008 (PDF, 3 pages) noted the usefulness of the Handbook for accountants, in particular:

The handbook was reviewed and edited by the Fiduciary Task Force of the AICPA Personal Financial Planning Executive Committee.

“CPAs practicing in financial planning and investment advisory services are well respected for ethical and fiduciary standards that put investors’ interests first and foremost,” said Clark Blackman, CPA/PFS, president of Alpha Wealth Strategies, LLC, and chair of the task force.

“This handbook is an essential guide to help these CPAs maintain an insightful and disciplined investment practice.”

Investment practitioners can use the new handbook to enhance their fiduciary practices and procedures and demonstrate their adherence to the highest standard of excellence.

Since all the suggested practices are substantiated by legislation, case law, or regulatory opinion letters, investment practitioners can be confident they are basing their investment decisions on a validated source. * * *

This U.S. version of such an investment advisors handbook is one of three handbooks in a series developed by Foundation for Fiduciary Studies:

The tangible result of the Foundation’s mission is the Prudent Practices for Investment Fiduciaries handbook series.

The Investment Stewards (blue) handbook highlights the 22 Practices that form the process a trustee or investment committee member should follow in managing their investment decisions.

The Investment Advisors (red) handbook features 23 Practices that mirror the Stewards process, yet are specifically tuned to an advisor’s unique role in the investment process.

Finally, there are an additional 24 Practices written specifically for an Investment Manager (green), covering their responsibilities of buying and selling the individual securities for an investment portfolio.

The handbooks represent the best the industry has to offer in terms of defining fiduciary excellence. Combining the minimum requirements of pertinent legislation with industry best practices, any person in the position of having fiduciary responsibility can be certain their obligations are being met when they follow the process defined in the handbook that is written for their role in the investment process. * * *

Investors -- both individual & institutional -- should be comforted that such standards exist in the form of these handbooks, as noted in the AICPA Press Release:

“Investors demand and are entitled to the best from their advisors,” said Blaine Aikin, CEO of fi360.

“An investment practitioner who is proactive in performing his or her fiduciary duties to the very highest standard of care can confidently meet those demands.” * * *

Such issues surrounding ethical & independent investment advice, perhaps as a fiduciary duty, continue in debate at a federal regulatory level, but remain unresolved for an entire industry. See: PA EE&F Law Blog posting, "Are Investment Advisors & Broker-Dealers, Fiduciaries?" (01/10/08).

The AICPA, in spearheading its national public-education effort of the CPA profession, 360 Degrees of Financial Literacy, hopes to improve the financial understanding of Americans at all age levels for their individual situations. This is a positive contribution to this discussion.