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FINRA’s proposed rule 3241 seeks to mitigate conflicts of interest that may arise when an advisor assumes certain types of fiduciary obligations for a client. It places addition scrutiny in cases where an advisor serves as the trustee or beneficiary for a client.
As currently proposed, it would not apply to an advisor’s immediate family. That said, there are a myriad of reasons for advisors to thoughtfully consider the minefield of issues when a family member asks you to serve in an advisory capacity:
- How might this affect my ability to provide unbiased investment advice?
- How will my decisions affect my relationship with other family members?
- Do I possess the expertise and competency to fulfill the role?
- Do I charge a fee for this service or do it for free?
- What is the real cost savings versus an institutional bank/trust company?
- Who would step into my role if I am unable or unwilling to serve?
The proposed rule would mandate that firms have policies and procedures to effectively evaluate and approve all such requested trustee designations. Additionally, should an advisor be granted an “immediate family” exception, the firm is required to perform ongoing oversight of potential conflicts of interest.
Frequently, advisors who have established themselves as an integral part of a client’s support network are asked to serve as a successor trustee in their client’s estate-planning documents. Additionally, they are often asked to take on the role of executor and/or power-of-attorney (POA). Alarmingly, in some cases, advisors may even be named as a client’s direct beneficiary for IRAs, retirement plans, trusts, and other financial accounts.
With this new proposal, your responses to these requests will come under additional scrutiny and could jeopardize your career as an advisor. As much as “no thanks” appears to be your obvious response, I published an article in September 2018 that offers insights that will help you comply with the new proposed rule, while strengthening your role as a primary financial resource in managing your client’s multi-generational assets.
If you are serving or contemplating assuming one or more of these roles for a client, reevaluate both your risks and options. Advisor friendly institutional trust companies offer you a perfect alternative in navigating this slippery slope.
As a founding member of one of the original “Advisor Friendly” independent trust companies in 1991 and widely considered a “pioneer” in this rapidly expanding arena, Mike Flinn consults with advisors in the strategies and questions necessary to engage clients in the successor trustee dialogue. During his career, he has enabled advisors to capture and manage over $6 billion in new trust assets.
Read more articles by Mike Flinn
