How should an advisor conduct an investment review?
The fiduciary must conduct an annual review of all covered accounts (e.g. plans, IRAs) for which it provides investment advice to evaluate whether the investments are appropriate for the account. (Note: though investment monitoring is typically a duty of a fiduciary advisor, this obligation does not apply if the duty to monitor investments was properly disclaimed in the client agreement as permitted under the new DOL fiduciary rule.)
The advisor should conduct the following reviews:
A. Pre-acceptance review.
Before accepting a fiduciary account, a fiduciary should review the prospective account to determine whether it can properly administer the account.
B. Initial post-acceptance review.
Upon the acceptance of a fiduciary account for which a fiduciary has investment discretion, the fiduciary should conduct a prompt review of all assets of the account to evaluate whether they are appropriate for the account
C. 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 provides investment advice to evaluate whether the investments are appropriate, individually and collectively, for the account. The review should include an individual account review to consider the basic merits of the securities and other investments, and a review by issuer to consider financial and other data relevant to the issues and its position in the industry.
In order to properly conduct the review, the assets of each account must be reviewed, both individually and collectively, to determine whether they are appropriate for the account. To achieve this purpose, the fiduciary must 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 or prudence 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 record the documentation in the account’s records.
Use the Investment Review Policy Template to document your investment review approach for your clients.