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Prudent Practices Update

May 22, 2013

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We are pleased to announce that we have released the most recent update to the Prudent Practices and the Prudent Practices for Investment Fiduciaries handbook series. This update is the result of an extensive process of review and revision to ensure the Practices continue to be the definitive source of fiduciary guidance available to investment professionals.

The following is a summary of the updates and update process. 

Summary of updates to the Prudent Practices for Investment Stewards and Prudent Practices for Investment Advisors

  • Revisions to Practices:
    • Alignment of Stewards and Advisors Practices - Previously, there was an additional Practice for Advisors (1.1). A corresponding Practice has been added to the Stewards version.
    • Consolidation of Practices - In two cases within the Practices for Stewards and Advisors, two Practices have been combined into a single Practice. Specifically, the previous Practices 3.1 and 3.3 are now reflected in Practice 3.3, and, similarly, Practice 4.4 and Practice 4.5 have been updated into Practice 4.4. This has resulted in a net decrease of Practices to the current number of 21 Practices in both the Stewards and Advisors Practices.
    •  Revisions to the Practices and Criteria - With the exception to the consolidation mentioned above, there is a basic 1:1 equivalent of previous to updated Practices, meaning the fundamental tasks in the fiduciary process are unchanged. However, in nearly every case there have been updates to the wording of both the Practices and Criteria. These changes were made either to reflect changes in law and regulation, to reflect input of practitioners, or for clarification purposes. There is also a net increase of 13 Criteria, which is where any new requirements can be found. You can review the previous and updated Practices side-by-side by downloading the following comparison documents:
    • Role-specific differentiation of Practices and Criteria - In addition to the overall revisions of the Practices and Criteria mentioned above, there is greater differentiation in the wording of Practices and Criteria to reflect the unique perspectives of an Investment Steward versus that of an Investment Advisor. These differences can also be reviewed in the above comparison documents. 
    • No changes to the Investment Managers Practices and Criteria
  • Revisions to the handbooks (Unless noted, revisions apply only to the handbooks for Investment Stewards and Investment Advisors)
    • Updated Practices and Criteria - The newest editions of the handbooks reflect the updates made to the Practices and Criteria outlined above. 
    • All new introductions to Stewards, Advisors, and Managers handbooks
    • Updated ERISA rules and guidance to reflect recent DOL actions
    • Addition of Investment Advisers Act of 1940 - The Advisers Act, not previously addressed in the Prudent Practices handbooks, has now been included in the legal substantiation and in narrative discussion. 
    • New or expanded discussion of:
      • fiduciary obligations of securities brokers
      • avoiding or managing conflicts of interest
      • Dodd-Frank Act provisions addressing fiduciary duties
      • Socially responsible investing and exclusive purpose doctrine under ERISA
      • large-loss scenario and liquidity needs
      • increased due diligence and review of custodial arrangements in light of Madoff and other Ponzi schemes
      • managing conflicts when "switching hats" to non-fiduciary status under other financial services licenses
      • considerations by fiduciary advisors working in a large firm environment
      • generally accepted investment theories
      • fiduciary history
      • explanation of legal terms "reasonable" and "material" in the context of fiduciary duty
    • New suggested Procedures and Practice tips to improve fiduciary performance and firm culture
    • Greater emphasis on fundamental fiduciary duties of loyalty and care

Summary of the update process

This update to the Practices and handbooks is the result of a thorough and extensive review process that took place over the course of nearly two years and involved the input of 23 individuals and three law firms. Contributors included members of the fi360 team, fi360 Pacific, CEFEX, fi360 Training faculty, and external subject matter experts from a variety of practice areas. Technical review was conducted by the American Institute of CPAs' Personal Financial Planning Executive Committee (Investment Advisory Task Force). Legal Review included attorneys from applicable practice areas from the law firms of Drinker Biddle & Reath, Hamburger Law Firm, and Saul Ewing.  

This is the second major revision since the publishing of the original fiduciary handbook, Prudent Investment Practices. The last major revision occurred in 2006, when we first introduced separate handbooks for Investment Stewards, Advisors, and Managers. Minor revisions occur as needed each time the handbooks are re-printed, generally on an annual basis.

Resources and access instructions

Electronic (PDF) copies of the updated handbooks are available for download to all active AIF and AIFA Designees via the Designee Portal in the Designee Materials section. Hard copies are available for purchase from the Fiduciary Store.  

You can review the new Practices via the updated Periodic Tables (Stewards version here; Advisors version here; Managers version here) or by visiting the Practices section of our website

Press Release

A blog post on the history of the Prudent Practices, written by Rich Lynch. 

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