Due Diligence Process to Identify, Avoid and Disclose Conflicts of Interest
A financial advisor owes a duty to their clients to provide advice to identify, avoid and disclose any conflicts of interest. A financial advisor should employ an objective, independent due diligence process designed to identify and avoid conflicts of interest and disclose those conflicts of interest that cannot be avoided. To avoid potential conflicts of interest a financial advisor should make certain disclosures concerning compensation including:
- Information related to costs and compensation paid to advisor and their employer;
- Sources of payment made to financial advisor and their employer;
- Any conflicts of interest with third-parties with agency or contractual relationships with parties;
- Any conflicts of interest with family members of parties.
Compliance with financial industry rules and regulations requires certain disclosures depending on the type of advisory relationship, such as SEC Form ADV for fiduciary accounts, and other disclosure documents which provide disclosures of potential conflicts of interest. A financial advisor is required to identify, avoid and disclose unavoidable conflicts of interest when dispensing financial advice to clients.
