When lay fiduciaries (trustees or investment committee members) lack the time, inclination, or knowledge to prudently manage their critical decision-making responsibilities, they’re encouraged, if not required, to outsource their duties to a prudent expert.
We can expect to see a significant uptick in outsourcing from more than 8 million lay fiduciaries who are managing the assets of pension plans, foundations, endowments, and personal trusts. Most are overwhelmed by the volume and complexity of new regulations; the increased prospect of litigation; and, the sheer number of new investment products and strategies that are being brought to market.
When outsourcing, lay-fiduciaries face an additional challenge: Whom to trust?
To answer this question, we’d like to introduce a new term – ‘justified trust.’ Actually, the term is not new; it’s just new to the U.S. financial services industry. Australia and New Zealand have been using the term ‘justified trust’ to refer to persons qualified to handle certain tax matters (thank you Ross Fowler for introducing this term to our team).
When lay fiduciaries are seeking to outsource their responsibilities, obviously they should seek an expert with fiduciary knowledge and skills. As important, they should seek a professional who is worthy of justified trust.
There are nine associated attributes. The justified fiduciary should be:
Patient
It takes time to build and maintain justified trust. There are no shortcuts despite recent attempts by regulators to try to build trust by waving a regulatory wand and making everyone a fiduciary.
Attentive
A justified fiduciary listens, clarifies expectations, and delivers on promises. They apply a transparent and consistent decision-making process to help build justified trust.
Competent
The expert worthy of justified trust has to have acquired a body of specialized knowledge that has been attained through additional education, training, and experience. The expert must be a life-long learner who looks to exceed de-minimis regulatory standards.
Accountable
Justified trust can’t be bought. No amount of money thrown at hiring or firing people, painting over a tarnished logo, or turning up the amperage on a public relations campaign can overcome a breach of trust.
Selfless
Justified trust embodies the essence of stewardship, whereby the professional demonstrates their passion and discipline to protect the long-term interests of others.
Character-full
Nothing erodes justified trust faster than evidence of character flaws. It used to be that ‘charisma’ was the most desired trait in a financial services professional. Not anymore; today it’s character. Justified trust requires that the professional have an impeccable reputation.
Courageous
The industry has allowed legal opinions and compliance requirements to become the surrogate for courageous and ethical decision-making. Those worthy of justified trust are able to demonstrate their capacity for moral discernment.
Purposeful
Those worthy of justified trust can demonstrate that they’re coming from a genuine place and responding to a higher calling. Even in the animal kingdom, the leader is the one that is most trusted to be equitable in meeting the varied demands of the herd or pack.
The point of inspiration for moral, ethical, and prudent decision-making
In turn, the justified fiduciary makes their life and work meaningful so that they can be of service to others. They’re model leaders.
As lay fiduciaries begin to outsource their responsibilities, we’ll see the need to define the basis for evidential trust. Knowledge and skill are critical factors, but so is an expert’s capacity for justified trust.
Don Trone is regarded as the ‘Father of Fiduciary’. He is the CEO and co-founder of 3ethos and the CEO and one of the co-founders of the Center for Board Certified Fiduciaries which is affiliated with the Wake Forest University School of Professional Studies. CBCF is the only organization offering graduate-level training in the leadership and stewardship roles of fiduciaries.
