• Neal Shikes

A Cascading Behavioral Roadmap for Fulfilling Fiduciary Duties


Fulfilling fiduciary duties is an outcome of successfully integrating processes and methodologies that require different skill-sets. All major decisions should be made with ONLY the economic interests of the plan participants in mind. Failure to do so increases the likelihood of a breach of fiduciary duty.

Here is a Plan's Sponsor's road-map to successfully fulfill fiduciary duties:

  • Identify the skillsets that are required to fulfill fiduciary duty.

  • . portfolio construction/investment selection.

  • . analytics (tools most associated with Modern Portfolio Theory).

  • . financial technology (evidencing behaviors and methodologies).

  • . the application of Law/Regulation (ERISA, UPIA).

  • . recordkeeping/administration/employee communications.

  • Identify the people that have the required functional skill-sets and assign them to their fiduciary tasks

  • Develop and memorialize a viable and executable Investment Policy Statement (IPS)

  • Identify the financial technology that evidences behaviors and methodologies (i.e. financial planning/portfolio construction software/services, client relationship management software/services, reporting software/services)

It is important to note that all outcomes and breaches of fiduciary duty /fiduciary responsibility fulfillment cascade from the above four tasks.

Methodologies that are consistent with the IPS and free of conflicts of interest, need to be created and applied to:

  • Choosing and reviewing investment options.

  • Choosing and reviewing record-keepers/administrators.

  • Choosing and reviewing investment advisers.

  • Visibly evidencing the above three.

  • Plan participant communications.

  • A fiduciary continuing education program.

In addition, Plan Sponsors/Investment Committees need to follow ERISA Class Actions and it should be integrated into a continuing education program. Initially, however, the following needs to be accepted:

  • Trust Law is instructional to ERISA.

  • The Uniform Prudent Investment Act (UPIA) is instructional to prudence and validates the use of Modern Portfolio Theory (MPT).

  • Specific returns, costs, expenses are not mandated via ERISA and no operational guidance is offered.

  • Plan Sponsors/Investment Committees never relinquish their oversight duties.

Breaches of Fiduciary Duty and their poor outcomes tend to originate from poor behaviors and decisions that create a negative cascading effect on a Retirement Plan. A simple impact analysis can reveal whether the Plan Sponsor's/Investment Committee's behaviors and methodologies is having a positive or negative cascading effect on a Retirement Plan.

#DOL #FiduciaryDuty #ERISA #RetirementPlans #FiduciaryLaw #FiduciaryAwareness

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