Fiduciar y Compliance Checklists
In short, whenever consequences of failure are high, using
a checklist can significantly reduce worst case scenarios.
Checklists can be the difference between good intentions
and high quality execution.
A Special Reason For Fiduciary Compliance
Checklists
Imagine, for a moment, the items you might find on the
aforementioned surgical team’s checklist: apply antibiotics,
sterilize equipment, verify type-specific blood reserves, etc.
These real-world items (or actions) are often distinct and
tangible. By contrast, elements of compliance checklist are
driven by intangible legal and ethical precepts and, therefore,
harder to define.
Going through the exercise of creating (or applying) a
checklist to clarify the required elements of compliance
can crystallize the vague good intentions of an investment
committee into constructive real-world results.
Some Checklists You Can Use
There are a variety of checklists which can be useful when
conducting a fiduciary review. These include an Investment
Policy Statement provision checklist, a compliancedocumentation checklist, or safe harbor protection checklists
which delve into features of specific laws, such as a Pension
Protection Act (PPA) QDIA checklist or an Employee
Retirement Income Security Act (ERISA) 404(c) checklist.
What sort of elements might belong on each of these lists?
An Investment Policy Statement (IPS), as most readers know,
describes the investment goals and details the appropriate
strategies that an institution could use to attain these goals.
However, a cursory search on any search engine will show
sample investment policy statements in all sizes and levels
of specificity as they become tailored to the unique goals of
any individual or institution. For instance, IPSs commonly
detail their risk tolerances, return requirements and allowable
investment strategies. However, an individual’s IPS might
include estate planning guidelines whereas an institutional
IPS, given the additional layers of complexity, should define
the roles of the multiple vendors and consultants working
on behalf of the plan. Moreover, a foundation’s IPS might
Whenever consequences
of failure are high, using a
checklist can significantly reduce
worst case scenarios. Checklists
can be the difference between
good intentions and high quality
execution.”
include a static strategic allocation target (e.g—60% equity
/ 40% fixed income) whereas a defined benefit plan might
allow for changes in the strategic allocation if they are
perusing a liability driven investment (LDI) strategy. The
required elements in an IPS can be as unique as the client,
and the checklist should reflect that.
Compliance checklists, for QDIA or 404(c), might delineate
the key features of the law and specify how an institution
is meeting the specifications of the law. For example, a
QDIA list might check how often participants can optout of a QDIA, or verify how the annual QDIA notice
was communicated to participants. Alternatively, a 404(c)
checklist might check if participants are informed of the
investments’ limitations, such as voting rights or additional
penalties for fund transfers within a plan.
Moving Forward
Again, the process of designing a comprehensive checklist
can be helpful in determining which lists are necessary for
your institution and which elements are being satisfied. Be
sure to work with a qualified fiduciary consultant for guidance
when creating a list or customizing one to work for you.
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