IMCA Statements of Position About the Department of Labor Conflicts of Interest Rule

IMCA Statements of Position
About the Department of Labor Conflicts of Interest Rule

IMCA’s Code of Professional Responsibility promotes integrity, loyalty, objectivity, and ethical conduct. IMCA’s articles of incorporation, written 30 years ago, place great emphasis on ensuring “quality service to the public through developing and encouraging high standards and best practices for the investment and wealth management disciplines.” Based on these principles, IMCA appreciates the broad goal of the U.S. Department of Labor (DOL) in drafting its Conflicts of Interest proposed rule, which is to ensure that clients’ interests are put first, and that the advice they receive is objective, impartial, and devoid of conflicts of interest.

IMCA and its members have long supported the cardinal principle of putting the interest of the client first. IMCA’s members span all segments of the advisor community, and through its Code of Professional Responsibility, first approved in 1987, IMCA has maintained (and enforced through a public disciplinary process) a principle requiring its members and certificants to “… always place the financial interests of the client first. All recommendations to clients and decisions on behalf of clients shall be … in the best interest of the client.”

We understand concerns raised by other industry groups regarding many facets of the DOL conflict of interest rule, and we expect that the salient issues that various organizations—both industry and consumer—have expressed will be adequately reviewed and taken into consideration by the DOL. However, for IMCA’s 30-year history, the organizational mission has been to focus our resources on developing and delivering exceptional education, and administering world-class certification programs for advanced investment and private wealth advisors. IMCA does not register as a lobbyist and refrains from lobbying on behalf of its members.

About IMCA’s Focus on Fiduciary event

As part of its education mission, IMCA is hosting its second annual seminar in Washington, DC to deliver unbiased education on evolving fiduciary rules affecting investment and private wealth advisors.

Congress and federal regulators are in the midst of attempting to update a fiduciary standard that reflects significant changes in the marketplace affecting financial intermediaries and the investing public. Standards for practitioners have already been set for many financial service professionals through their voluntary affiliations with organizations such as IMCA, the CFP Board of Standards, and the CFA Institute. IMCA’s objective is to continue to educate its members on ethical standards, as well as how the proposed or pending rules under consideration by the Securities and Exchange Commission (SEC) and DOL may affect their practices.

Frequently Asked Questions (FAQ)

Q.           What does IMCA’s Code of Professional Responsibility entail?

A.            IMCA’s Code requires all IMCA members, CIMA® and CPWA® candidates, and IMCA-certified professionals to:

1.  Act in the best interest of the client.

2.  Disclose services to be offered and provided, related charges, and compensation.

3.  Disclose the existence of actual, potential, and/or perceived conflicts of interest and relevant financial relationships, direct and/or indirect.  Take appropriate action to resolve or manage any such conflicts.

4.  Provide clients information needed to make informed decisions.

5.  Respond to client inquiries and instructions appropriately, promptly, completely, and truthfully.

6.  Maintain confidentiality of client information, however acquired, consistent with legal and regulatory requirements and firm policies.

7.  Provide competent service by truthful representation of competency, maintenance and/or development of professional capabilities, and, when appropriate, the recommendation of other professionals.

8.  Comply with legal and regulatory requirements related to one’s practice of his or her profession.

9.  Maintain a high level of ethical conduct.

 

Q. How does IMCA’s “Clients First” standard apply to the fiduciary standards discussed by the DOL and the SEC?

A. As IMCA members come from many different firm types and regulatory backgrounds, the definition of “best interest of the client” relates to different operational processes but always must conform, at a minimum, to the legal, regulatory, and firm standards under which the IMCA professional is licensed. For instance, if the IMCA professional is regulated by a firm that is under a suitability standard for taking orders from clients, then the “best interest of the client” is the suitability standard. If IMCA professionals are using discretion in their trading and fall under the fiduciary standard of their firm, then the “best interest of the client” is the fiduciary standard. HOWEVER, in either instance the IMCA professional must abide by the IMCA Code of Professional Responsibility, which often requires management of conflicts and due diligence process that are higher than the standards required by law.

Q. How does IMCA’s Code and standards address conflicts of interest?

A. One important condition of membership is that an IMCA professional must disclose not only the services provided and the compensation related to those services, but also the existence of relevant financial relationships, direct and/or indirect, and actual, potential, and/or perceived conflicts of interest to the client. In addition, they agree to take appropriate action to resolve or manage any relevant (i.e., material) conflicts. A “direct relevant financial relationship” means any arrangement or transaction related to the purchase and/or sale of goods and/or services between a third party and the Financial Professional, the Financial Professional’s partners and associates, and/or the Financial Professional’s firm and/or its affiliates which has a direct impact on the client’s decision. 

“Actual, potential, and/or perceived conflicts of interest” must be disclosed and include any situation which may affect the impartiality of the Financial Professional’s decisions or recommendations potentially resulting in benefit to the Financial Professional, his/her firm, another client, and/or others relative to the obligations and duties owed to the client. For example, a Financial Professional whose agreement with the client allows for a dual fee structure (such as one where advisory fees are charged as a percentage of assets under management as well as for commissions to be collected), the Financial Professional must disclose the actual, potential, and/or perceived conflicts arising from the dual fee structure.

Q. Does disclosure adequately manage conflicts of interest?

A. The IMCA professional has duties beyond disclosure of financial relationships and/or conflicts. The IMCA professional must also act appropriately to resolve or manage conflicts. They must comply with all legal, regulatory, and firm requirements concerning the actual, potential, and/or perceived conflicts as they apply the facts and circumstances of each scenario to the case. These decisions are made under their firm’s supervision requirements.    

In the normal course of business, a Financial Professional may encounter actual, potential, and/or perceived conflicts of interest, any of which creates the potential to harm their clients and/or firm's reputations. The IMCA professional is responsible to take reasonable steps to identify all relevant financial relationships and conflicts and be alert to the possibility that an activity or interaction may present an actual, potential, and/or perceived conflict. As such they are obligated under IMCA’s ethical standards to avoid or manage conflicts if at all possible. If conflicts are unavoidable or unpreventable, they must take appropriate steps to manage conflicts by seeking to mitigate or avoid material risk of damage to the clients and/or the firm.  

Q. Does IMCA lobby? What position has IMCA submitted to DOL on this rule?

A. IMCA does not register as a lobbyist and refrains from lobbying on behalf of its members. IMCA takes no position on the specifics or requirements outlined in the DOL proposed conflicts of interest rule.

Q. Has IMCA ever taken a position on any fiduciary issue? Did IMCA submit a comment to the SEC as part of their cost-benefit analysis of fiduciary advice?

A. In July 2013, IMCA provided the SEC with a compilation of recent academic studies on the cost of financial advice. This summary of academic research provided data and other information that addressed specific questions related to the benefits and costs resulting from the application of a fiduciary standard of care to the conduct of brokers, dealers, and investment advisors. Responses were organized to address each topic by providing an overview of theory and empirical evidence.  

The purpose of this document was not to advocate a position on possible regulatory actions. Rather, it was intended to provide an in-depth review of the extant literature, primarily from economics, finance, and law, related to the regulation, incentives, and outcomes of the existing advice marketplace. Observations on the likely impact of various strategies on the marketplace were entirely those of the reviewer, Professor Michael Finke of Texas Tech University, and were based on the preponderance of empirical evidence and the strength of related theories.