The Impact of FINRA’s Ruling on Advisors as Trustees

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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.