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