Best Interest and Best Practices

The Department of Labor’s (DOL) fiduciary rule may be moribund, but that doesn’t mean that investment fiduciary standards are — including best interest standards. A recent blog post by Fred Reish discusses how to best meet the various such standards that are in place.

In this case, says Reish, “best interest” refers to standards one must follow in order to be in compliance; “best practices” are voluntary and are more than law and regulation require. In his view, meeting the best interest standards and employing best practices can involve doing the following:

Gather information relevant to providing advice that is in the client’s best interest. This means gathering information necessary to developing a recommendation appropriate for an investor.

Consider types of appropriate investments and strategies based on analysis of the investor’s profile. This entails forming a strategy for an investor based on products and services available to those serving it.

Select investments, insurance products and services that will be recommended. This concerns the investments, insurance products and services that will populate and implement the investment strategy. In addition, says Reish, the quality of the product is another important consideration.

These considerations address the suspicion Reish expresses that if one “gets into trouble because of his or her recommendations, it will be the result of an inappropriate (and perhaps unsuitable) strategy, excessive costs and compensation, or inferior quality of the ‘manager’ of the product.” He adds that while “there is not a requirement to maintain documentation of the process. However, it probably goes without saying that a well-documented process is good risk management (and, for that matter, that a well-documented process is likely to be a prudent process).”