The Issue of Conflict of Interest

Acting as a Power of Attorney (POA) for a client places Investment Adviser Representatives (IARs) in a conflict of interest. Typically, an IAR is entrusted with providing impartial advice that solely serves the client's best interests. However, taking on a POA role grants the IAR legal authority over a client's financial decisions. This dual capacity can lead to situations where there's potential, intentional or not, for decisions that could benefit the adviser or their firm rather than the client. The mere appearance of impropriety can undermine trust and violate the fundamental fiduciary responsibility an IAR holds.

Regulatory Concerns and Compliance Risks

Regulatory bodies like the SEC and state securities regulators are vigilant about relationships with entangled personal and professional roles in the financial advisory sphere. Any perceived or actual conflict where advisers might exert undue influence over clients' financial matters can trigger scrutiny. During audits, such dual roles can raise red flags, risking penalties or damage to reputational integrity if viewed as a breach of fiduciary duty. Thus, maintaining clear professional boundaries is crucial to remaining compliant and upholding the integrity of the advisory process.

Alternatives to Advisor-POA Roles

When clients lack family or trusted persons to nominate as their POA, recommending a neutral third party is advisable. Options include engaging professional fiduciaries, trust companies, or estate planning attorneys. These third parties can manage the complexities of acting as POA without interference from potential financial advisement conflicts. Such referrals not only preserve the advisory relationship's integrity but also ensure adherence to regulatory standards.

Maintaining Professional Boundaries

The cornerstone of effective financial advisement rests on maintaining professional boundaries and clear ethical standards. While it may be tempting to accommodate a client's request to serve as their financial POA due to a trusted relationship, it is important to recognise the obligations an IAR holds as a fiduciary—placing the client's interests above all. When approached with requests to take on a POA role, advisers should politely decline while assisting clients in finding independent, suitable solutions to manage their affairs. By doing so, IARs can continue to exercise their commitment to ethical advisement and sustain client trust through transparent practices.  If you are interested in learning more about this topic our would like to have a deeper estate planning discussion, give us a call at 256-417-4870 or 813-522-4455

Mike

About the Author: Mike Mickels is the President and Chief Compliance Officer of CochranMickels Retirement Specialists, LLC, and an avid sporting clay competitor. Our firm provides personalized planning and investment services to individuals approaching and in retirement. Disclaimer: This content is intended solely for informational purposes. CochranMickels Retirement Specialists, LLC and its representatives are only authorized to offer advisory services where properly licensed or exempt from licensure. Investing carries risks, including potential loss of principal capital. Our firm does not endorse external links, nor is it responsible for third-party content