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Prudent Investment Process

Advisors Practices

The Prudent Practices for Investment Advisors are for professionals who are responsible for providing investment advice and/or managing investment decisions, including wealth managers, financial advisors, trust officers, financial consultants, investment consultants, financial planners, and fiduciary advisers.

You can view the Practices below or by downloading the Periodic Table of Global Fiduciary Practices for Investment Advisors

Each Practice has been substantiated by applicable legislation, regulation, and/or case law to ensure compliance. Full citations, as well as detailed Criteria, narrative discussion, practical application, and suggested procedures can be found in the Prudent Practices for Investment Advisors handbook, available for download in the Designee Portal. Hard copies can be purchased in the Fiduciary Store


Step 1: Organize

Practice 1.1
The Investment Advisor demonstrates an awareness of fiduciary duties and responsibilities.

Practice 1.2
Investments and investment services provided are consistent with applicable governing documents.

Practice 1.3
The roles and responsibilities of all involved parties (fiduciaries and non-fiduciaries) are defined and documented.

Practice 1.4
The Investment Advisor identifies conflicts of interest and addresses conflicts in a manner consistent with the duty of loyalty.

Practice 1.5
Agreements, including service provider agreements under the supervision of the Investment Advisor, are in writing and do not contain provisions that conflict with fiduciary standards of care.

Practice 1.6
Client assets are protected from theft and embezzlement.
 


Step 2: Formalize

Practice 2.1
An investment time horizon has been identified for each investment objective of the client.

Practice 2.2
An appropriate risk level has been identified for each client.

Practice 2.3
An expected return to meet each investment objective has been identified.

Practice 2.4
Selected asset classes are consistent with the client’s time horizon and risk and return objectives.

Practices 2.5
Selected asset classes are consistent with implementation and monitoring constraints.

Practice 2.6
The investment policy statement contains sufficient detail to define, implement, and monitor the client’s investment strategy.

Practice 2.7
When socially responsible investment strategies are elected, the strategies are structured appropriately. 
 


Step 3: Implement

Practice 3.1
A reasonable due diligence process is followed to select each service provider in a manner consistent with  obligations of care. 

Practice 3.2 
When statutory or regulatory investment safe harbors are elected, each client’s investment strategy is implemented in compliance with the applicable provisions.

Practice 3.3
Decisions regarding investment strategies and types of investments are documented and made in accordance with fiduciary obligations of care.
 


Step 4: Monitor

Practice 4.1
Periodic reports compare investment performance against appropriate index, peer group, and investment policy statement objectives.

Practice 4.2
Periodic reviews are made of qualitative and/or organizational changes of Investment Managers and other service providers.

Practice 4.3
Control procedures are in place to periodically review policies for trading practices and proxy voting.

Practice 4.4
Periodic reviews are conducted to ensure that investment-related fees, compensation, and expenses are fair and reasonable for the services provided.

Practice 4.5
There is a process to periodically review the organization’s effectiveness in meeting its fiduciary responsibilities.

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