Practice Management, Ethics, and Regulatory Compliance
Practice Management, Ethics, and Regulatory Compliance
This domain tests the business and compliance machinery behind advice: how the practice is structured, how it is paid, what must be disclosed, and what records must exist when a regulator asks.
Practice models and fees
- Fee-only (retainer, hourly, assets under management), commission, and fee-based hybrid are distinct models, each with a different conflict profile. AUM fees create an incentive to grow assets rather than to pay down debt.
- Segmentation by client profitability and service model keeps the practice viable; an engagement letter defines scope, fees, and responsibilities.
- Succession and continuity planning is a regulatory expectation in most jurisdictions: what happens to client files if the planner dies or is incapacitated.
Compliance essentials
- Know your client and know your product; verify identity and source of funds under anti-money-laundering rules, and monitor transactions.
- Privacy: collect only necessary data, secure it, and obtain consent before sharing.
- Advertising must be fair, balanced, and verifiable - no projected returns presented as likely outcomes, no unsubstantiated claims of expertise.
- Record retention: keep the rationale for recommendations, not only the transaction.
- Conflicts must be identified, disclosed in writing, and managed or avoided; disclosure after the fact is not consent.
- Ethics: integrity, objectivity, competence, confidentiality, professionalism, diligence. Competence includes knowing when to refer.
Worked example
A planner is offered a $2,000 referral fee by a mortgage broker for each client sent. Correct handling: disclose the fee in writing before the referral, obtain informed consent, and confirm the referral serves the client's interest; if the client would not consent, decline the fee or the referral. Receiving it silently breaches the fiduciary standard even when the mortgage itself is competitive, because the advice is no longer demonstrably unconflicted.
Traps that cost marks
- Assuming disclosure in an annual brochure is enough - specific, timely consent is usually required.
- Treating fee-based advice as conflict-free simply because it is not commission.
- Retaining only transaction records and being unable to reconstruct why a recommendation was made.
- Advising on legal or tax matters outside competence instead of referring.
- Marketing back-tested or hypothetical performance as though it were achieved.