Feature
THE BIGGEST MYTH FOR
INVESTMENT CONSULTANTS & FIDUCIARIES
By Gabriel Potter, AIF®
We apologize for the bad news ...
Many of our readers are fiduciary trustees for large pools of money: pension
funds, charitable foundations, employee
welfare & retirement plans, and so on.
You, the fiduciaries, should be applauded
for adopting this burden, for it is often an
underappreciated duty. As fiduciaries,
you are responsible for a great deal and
the scope of your responsibilities is ever
increasing.
At Westminster Consulting, we sometimes are bearers of bad news. It would
be easier to tell investment committees
all the ways that their attention wasn’t
required and how much more leisure
time everyone gets. In reality, we are
obligated to explain where your fiduciary
duties are.
Here’s where the bad news come in.
We have spoken with trustees working for a retirement plan or charity that
have, in an effort to off-load fiduciary
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responsibility, hired a fiduciary consultant to help manage their plan. Herein
lays the Myth…
some consultants may claim to act as a
fiduciary but still have major conflicts
of interest.
THE MYTH: “Our trustees hired an
investment consultant with fiduciary
status. Our consultant has no conflict
of interest because he is a fiduciary! So,
our plan is totally covered and we, the
trustees, we are no longer responsible
for the plan.”
THE PERFECT EXAMPLE OF
FAILURE
THE FACTS: This is wrong in two
important ways.
First, once you hire a consultant, even
one that adopts a fiduciary standard, plan
fiduciaries cannot completely off-load
their fiduciary responsibility. They may
share responsibility with a consultant,
but they cannot off-load it completely.
Second, and most importantly, the plan
fiduciaries will always be responsible
for overseeing the consultant. Why is
this difficult? The sad reality is that
As a reminder, what’s the difference
between a broker and a fiduciary? In
summary, brokers are salesmen while
fiduciaries are legally obliged to act in
your interests alone, without conflict of
interest or undivided loyalty.
Let’s consider about the investment
landscape for a moment. For decades,
investment consultants and brokers
working for wirehouses and large brokerage firms were subject to a lesser
standard – the suitability standard – but
now the fiduciary standard is expanding
to become the new legal benchmark of
behavior. The salesman can compete
by expanding their business to include
fiduciary lines of business, but it is not
clear when they are acting in their own