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  • Writer's pictureNeal Shikes

Fiduciary Focus #2 of 3: Fiduciary Drift: Content

Black’s Law Dictionary defines prudence as the following:

“Carefulness, precaution, attentiveness, and good judgment as applied to action or conduct. That degree of care required by the exigencies or circumstances under which it is to be exercised.”

A Fiduciary will drift in judgement when the focus is returns. Perhaps this occurs due to a lack of understanding in Wealth Management, Financial Planning, and fiduciary cognizance. For someone untrained, returns can be disguised as beta without consideration to volatility.

Investment options should be chosen and be consistent with the stated and visible goals of the plan while increasing the likelihood that the participants achieve their goals. For most asset classes and capitalizations, it becomes difficult to justify the expenses of active investment managers because few consistently outperform passive indexed investments. If active money management is chosen, there has to be a visible methodology that proves why. There have been Class Actions where this has been the basis.

The fundamental duty of the fiduciaries of a Retirement Plan is to adhere to the terms of the plan, to take reasonable care of the assets, and to act in the best interests of the participants. If this sounds vaguely familiar to the Fiduciary Duties of a trustee for a Trust, it should. ERISA modeled it that way. I wonder if the success rates of Class Action Suits and DOL Actions would improve if Employer Sponsored Retirement Plans were defined as trusts in the complaint and then characterizations are made about Fiduciary Duty and breaches.

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