In early April, the U.S. Department of Labor finally issued its long-anticipated new rule extending fiduciary responsibility to anybody who is compensated for providing investment advice, whether to individuals or retirement plans. In a nutshell, it requires fiduciaries to act in the client’s best interest.
Sounds simple. But the so-called streamlined rule is 1,028 pages long, takes 208 pages to define who is a fiduciary, and spends 317 pages explaining the best interest contract exemption.
As consultant Don Trone, founder and CEO of the research and training firm 3ethos told participants at the 2016 SVIA Spring Seminar, being a fiduciary is exhausting. But leadership, he countered, is exhilarating. He defined it as the ability to inspire and the capacity to serve others, and argued that fiduciaries will help their cause by embracing leadership.
Leadership qualities are especially important for fiduciaries, Trone said, because of the levels of mistrust associated with the financial services industry. He cited a 2015 Global Market Sentiment Survey by the CFA Institute in which 96 percent of the institute members polled said there is a lack of trust in the industry, with 63 percent citing a deficit in the industry’s ethical culture as a leading cause.
Trone said the DOL rule focuses on fiduciary responsibility in three areas: defining the roles and responsibilities of key decision-makers; preparing periodic reports that analyze fees, expenses and return on investment; and conducting periodic examinations for conflicts of interest and selfdealing. He urged retirement plan fiduciaries to go beyond those three areas by addressing other responsibilities, including stating goals and objectives for their plans, identifying sources and levels of risk and assets, identifying time horizons and expected outcomes, preparing a written strategy statement, defining the process for selecting key personnel to implement the strategy, and preparing periodic reports that analyze the strategy’s performance.
The ideal, Trone said, isn’t just to meet the minimum requirements of a fiduciary as spelled out by the DOL, but to be what he called an “ethotic leader,” someone who combines the attributes of leadership with those of stewardship and governance. He defined stewardship as the “passion and discipline to protect the long-term interests of others” and governance as “the ability to demonstrate the management of a prudent decision-making process.” He argued that those three terms, especially taken together, denote a higher sense of ethical discernment than “fiduciary.”