When do you do your best work? When someone tells you what and how to do it, or when you’re allowed to use your own initiative and ingenuity to get a task accomplished?
The vast majority of people would say too many rules act as disincentives. The job gets done, but rarely is it a reflection of our ability to provide a margin of excellence.
Consider the United Airlines incident when a passenger was dragged from an overbooked flight. Website www.askthepilot.com has provided the most plausible explanation as to why the United staff failed to act in the best interests of its customers:
Everything is scripted and rote and procedural, and employees are often so afraid of being reprimanded for making a bad decision (not to mention being pressed for time) that they don’t make a decision at all, or will gladly hand the matter to somebody else [in this case to police] who can take responsibility. By and large, workers are deterred from thinking creatively exactly when they need to.
Herein is the fiduciary paradox: So that we can act in the best interests of others, we need to decrease the number and complexity of rules that require that we do just that.
When ERISA was first published more than forty years ago, it struck the proper balance between Moral Aspiration (you want to) and Moral Obligation (you have to).
“Fiduciary” was defined in terms of a principles-based procedural prudence standard. No investment would be considered imprudent on its face. It would be the way in which the investment is used, and how a decision as to its use was made, that would be examined to determine whether the fiduciary standard was met.
Think of a seesaw where the board represents governance (a fiduciary standard). At one end is Moral Aspiration, and at the other is Moral Obligation. When the two are in balance, we have the greatest capacity to provide a margin of excellence and to act in the best interests of others.
To function properly, a seesaw requires a secure pivot point. With regards to good governance, leadership and stewardship must provide the critical fulcrum to help amplify the outcomes of a prudent decision-making process.
When regulators become heavy-handed with complex or numerous rules, the result is a desentization of our Moral Aspiration. More rules actually diminish our desire to want to act in the best interests of others, and often the result is mediocrity – or worse, as in the case of United Airlines.
If our objective is to provide those we serve a margin of excellence – we need to convince regulators that more rules will not translate into better outcomes. In turn, we need to accept responsibility to educate and inform fiduciaries of the leadership and stewardship behaviors that will amplify and improve their governance procedures.
The last thing our industry needs is a video of a bloodied retirement saver being dragged out of branch office because they wouldn’t acknowledge the receipt of a best interest contract exemption.
Don Trone, GFS® is the CEO and one of the co-founders of 3ethos, which conducts original research, assessments, and training in Behavioral Governance. He was the founding CEO of fi360; founding President of the Foundation for Fiduciary Studies; and, was the first person to direct the Institute for Leadership at the U.S. Coast Guard Academy.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
