What type of client account review should be done to identify potential prohibited transactions?
Assessment of Client Assets
In order to comply with the fiduciary standards, the assets of each account should be reviewed both individually and collectively to determine whether they are appropriate for the account. To achieve this purpose, the fiduciary should consider the basic merits of the assets comprising the account’s portfolio and whether these assets meet the objectives of the account. This requires the fiduciary to determine not only the suitability of each asset for the account but also the permissibility of each asset, i.e., whether holding the investment is permitted under the terms of the account contract and applicable law. Once the fiduciary completes the analysis of the portfolio of each account, it should adequately document the basis of the decision to retain, sell and/ or purchase assets for the account and retain the documentation in the account’s records.
The Assessment Process
Conduct the following reviews to satisfy the fiduciary standard:
- Pre-acceptance review. Before accepting a fiduciary account, a fiduciary should
review the prospective account to determine whether the fiduciary can properly
administer the account.
- Initial post-acceptance review. Upon the acceptance of a fiduciary account for which a fiduciary has investment discretion, or non-discretionary fiduciary investment advice responsibility, the fiduciary should conduct a prompt review of all assets of the account to evaluate whether they are appropriate for the account.
- Annual review. At least once during every calendar year, a fiduciary should conduct a review of all assets of each fiduciary account for which the fiduciary has responsibility to evaluate whether they are appropriate, individually and collectively, for the account.