There are more than a dozen different fiduciary standards in play today. To simplify this patchwork of regulatory rigor, we’ve broken the standards into three different modes.
Your success as a retirement professional will depend upon your capacity to know when and how to employ each of the different modes.
No. 1: New regulatory standards
Depending on your registered status as an advisor or broker, you’re probably subject to new federal and/or state fiduciary standards. If you carry the CFP mark, you’ll also be subject to the CFP Board’s re-released fiduciary standard.
What these various standards share in common is that they’re based on rigid and complex disclosures, rules, and regulations.
There are three challenges with these new standards: (1) because they’re complex, they’ll likely inhibit the formation of trust; (2) they’re not inclusive of a majority of established fiduciary best practices; and, (3) they don’t define the details of a prudent process.
There’s another critical shortfall with these standards – they don’t provide a framework that you can use to help train your lay-fiduciary clients who are managing the assets of pension plans, foundations, endowments, or personal trusts. That’s a significant oversight since 80% of our nation’s liquid investable wealth is in the hands of the more than 8 million lay-fiduciaries.
You also need to know that these new standards do not meet the requirements of ERISA’s procedural prudence standard. This standard is much higher than the best interest standard defined by new regulatory standards.
No. 2: Prudent investment practices
To meet the requirements of ERISA’s procedural prudence standard you need to demonstrate the details of a prudent decision-making process that integrates fiduciary best practices and generally-accepted investment management principles.
Twenty years ago the Foundation for Fiduciary Studies began to work on voluntary industry guidelines that would help satisfy the requirements of a procedural prudence standard.
[In the interest of full disclosure, I was the founder and President of the Foundation.]In 2003, the Foundation published their decision-making framework and inventory of fiduciary best practices in the handbook, Prudent Investment Practices.
The significance of this handbook is that it provided the industry a uniform framework that could be applied to any fiduciary client – be it a pension plan, foundation, endowment, or personal trust. This has greatly facilitated the training of both advisors and the 8 million lay-fiduciaries.
A version of this twenty-year-old standard is still being used today by fi360 for the AIF and AIFA designations, and by its auditing subsidiary, CEFEX.
No. 3: Leader-led fiduciary standard
Ten years ago we decided to evolve and elevate fiduciary standards by examining the differences between ‘good’ and ‘great’ fiduciaries.
What we’ve found is that both good and great fiduciaries incorporate best practices with their decision-making process.
Where they’re different is that great fiduciaries have a well-defined sense of purpose, and exhibit the behaviors of exemplary leaders.
To be great, you have to demonstrate the ability to build trust, and the capacity to inspire and engage others. Above all, that you’re passionate and disciplined about protecting the long-term interests of those you serve.
To be a successful fiduciary, you need to demonstrate that you: (a) are compliant with applicable fiduciary rules and regulations; (b) incorporate fiduciary best practices; and, (c) follow a procedurally prudent decision-making process.
To be regarded as a great fiduciary, you also need to be recognized as a point of inspiration for moral, ethical, and prudent decision-making.