A Two-Pronged Approach to Risk Management: Protecting Clients and the Firm

As an Investment Adviser, it is important to balance the needs and best interests of the clients with that of the firm. We believe that this aligns with mitigating the risks for both clients and the advisory business.

Mitigating Risks for the Client
Investment advisers are held to a stringent duty of care toward their clients. This means that they must act in the best interest of their clients, which includes implementing diligent risk mitigation to protect their clients’ well-being. An adviser’s fiduciary duty means that they must hold their clients’ best interests over theirs, ensuring that investment advice is tailored to the needs of the specific client and protocols are put in place.

In order to lead with a proactive risk management approach, Investment Advisers should perform thorough due diligence on investments and risk assessments of key business areas, considering potential regulatory, operational, and market risks before implementing new strategies. In addition, maintaining open communication with clients that is honest and timely establishes a relationship based on trust and transparency. Such transparency ensures that clients are aware of any conflicts of interest that exist in order to make informed consent to doing business with the adviser.

As it is the fiduciary duty of the Investment Adviser to put their clients’ interests above theirs, advisers must identify and either mitigate or eliminate any conflicts of interest that may exist for their clients. 

Mitigating Risks for the Firm
Advisers face constant risks to their reputation and professional integrity, especially when it comes to compliance. Some of the ways to mitigate these risks include:

Establishing a culture of compliance within the firm that strives to meet and exceed requirements and uphold strong ethical standards across the firm. Maintaining oversight of the business’ regulatory compliance, which can take form in regular assessments of company policies and procedures as well as business operations.

As part of maintaining operational resilience as a risk management tool, businesses should invest in adequate infrastructure and technology to address potential issues such as cybersecurity threats or operational gaps and put contingency plans in place in the event of an incident that could tamper with the operational functionality of the business.

A critical part of risk management is the people factor. Ongoing training and professional development are paramount to helping employees and key stakeholders stay informed on regulatory updates, best practices, and trends. In addition, providing team members with the tools to mitigate risks for the firm, in turn, assists in managing potential risks for clients. With a two-pronged approach to risk management, advisers can proactively avoid potential pitfalls both for their clients and the firm itself.

Jacko Law Group works with investment advisers, broker-dealers, advisers to private funds, and others in the advisory space, helping them to adopt a multi-faceted blueprint to identify, address, and, where possible, eliminate potential risks to their clients and to their business.

If you have questions about your risk management efforts, please contact us at 619.298.2880 or email info@jackolg.com.

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