DEFINING A GLOBAL

FIDUCIARY STANDARD OF
EXCELLENCE

Donald B. Trone
CEO
Fiduciary360

THE FIDUCIARY EFFECT

Every investment industry scandal has had one thing in common:
A fiduciary parlayed their position of trust for personal profits.

The dollars lost from the mismanagement of public pension plans

will likely dwarf all of the other industry scandals, combined.

95% of the funds that have been distributed from the tobacco
settlement have been diverted for other purposes.

If we don’t begin fixing our retirement plans today, we will be

facing a social crisis within 10-to-15 years that will dwarf the Great
Depression of 1929, both in terms of magnitude and duration.
“Fixes” are dependent upon the prudent acts of fiduciaries.

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Copyright Fiduciary360.
1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics

DEFINITIONS

Investment Fiduciary – Someone who is

managing the assets of another person and
stands in a special relationship of trust,
confidence, and/or legal responsibility.

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 DEFINITIONS
Investment Fiduciary can be further divided into three groups:

Investment Stewards – A person who has the legal responsibility

for managing investment decisions (trustees and investment
committee members.)

Investment Advisors – A professional who is responsible for

managing comprehensive and continuous investment decisions
(including wealth managers, financial advisors, trust officers,
financial consultants, investment consultants, and financial
planners).

Investment Managers – A professional who makes investment

decisions; selects the individual securities (stocks and bonds) to
implement a specific investment mandate (such as large cap
growth).
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RESPONSIBILITY vs. LIABILITY

An investment fiduciary can never
delegate away fiduciary responsibility – it
can be shared with other “co-fiduciaries,”
but never given away.

However, an investment fiduciary can

reduce, if not nearly eliminate, liability by
following prudent practices.

Source: Matthew D. Hutcheson

Radio Host, Retirement Hour

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 ISO-LIKE APPROACH
Standardization provides the framework for a common
language, which facilitates the transfer of knowledge
between the investment committee and their investment
advisor, investment managers, and constituents.

The focus is on excellence – what can be done to improve

the practices of an organization.

Utility of transference – based on “Quality Management

Systems” and internationally recognized procedures for
conducting verifications of conformance to defined
standards.

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PERIODIC TABLE OF FIDUCIARY PRACTICES

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SUBSTANTIATION – PRACTICES FOR

U.S. ADVISORS AND STEWARDS

Employee Retirement Income and Securities Act

ERISA
(Qualified retirement plans)

UPIA Uniform Prudent Investor Act

(Private trusts, foundations/endowments)

Uniform Management of Public Employees

MPERS Retirement Systems Act
(State, county, and municipal retirement plans)

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 GLOBAL FIDUCIARY PRECEPTS

1. Know standards, laws, and trust provisions.

2. Diversify assets to specific risk/return profile of client.
3. Prepare investment policy statement.
4. Use “prudent experts” (money managers) and document
due diligence.
5. Control and account for investment expenses.
6. Monitor the activities of “prudent experts.”
7. Avoid conflicts of interest and prohibited transactions.

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FIDUCIARY QUALITY MANAGEMENT SYSTEM

Analogous to the ISO 9000 QMS Continual Improvement Process

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PRACTICES MATRIX – STEWARDS AND ADVISORS

1. 2. 3. 4. 5. 6. 7.
Precepts Know Diversify Prepare Use Control and Monitor the Avoid
standards, assets to investment “prudent account for activities of conflicts of
laws, and specific policy experts” and investment “prudent interest and
trust risk/return statement. document expenses. experts.” prohibited
provisions. profile of due transactions.
Steps client. diligence.

Organize
Step 1 1.1 2.1 1.2 1.2 1.4 1.5 1.3

Formalize
Step 2 2.7 2.2, 2.4 2.6 2.6 2.5 4.1 1.3

Implement
Step 3 3.2 2.5 2.6 3.1 3.3 3.4 1.3, 4.5

Monitor
Step 4 4.6 4.1 4.6 4.1, 4.2 4.3, 4.4 4.1 4.5

Highlighted Practices should be reviewed in conjunction with Investment Manager Practices.

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 STEWARD AND ADVISOR PRACTICES

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BEST REVIEWED WITH INVESTMENT MANAGER PRACTICES

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INVESTMENT MANAGER PRACTICES

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PERIODIC TABLE OF FIDUCIARY PRACTICES

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VERIFICATION OF INVESTMENT STEWARDS

CAFE
Consultant’s Assessment of Fiduciary Excellence
Level III
Level II Verification

Defining a
Global Standard of Excellence
“Certification”
for
Investment Stewards
(U.S. Version)

For persons who serve as trustees of personal trustees, and investment committee members of retirement
plans, foundations and endowment.

the global leader in fiduciary intelligence

Foundation for Fiduciary Studies
Center for Fiduciary Studies
Fiduciary Analytics

Fiduciary360
438 Division Street
Sewickley, PA 15143
866-390-5080

Level II
“CAFE”
Level I
Handbook “SAFE”

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THE FIDUCIARY HANDBOOK SERIES

Investment Stewards Investment Advisors Investment Managers Investment Stewards

(U.S. Edition) (U.S. Edition) (Worldwide Edition) and Advisors
(Worldwide Edition)

“U.S. Editions” are fully substantiated by legislation, regulatory opinion letters and case law.
“Worldwide Editions” represent generally accepted industry best practices.

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 Copyright © 2006, Fiduciary360.

VERIFICATION LEVELS

Level I –SAFE™ (Self-Assessment of Fiduciary Excellence)

Investment Stewards Investment Advisors Investment Managers Investment Stewards

(U.S. Edition) (U.S. Edition) (Worldwide Edition) and Advisors
(Worldwide Edition)

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SAFE – INVESTMENT STEWARDS

™

The “SAFE” (Self-Assessment

of Fiduciary Excellence) is
intended to assist a party in
analyzing how well a fiduciary
meets a global standard of
excellence.

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 SAFE ™

Each question is intended to be

answered in the affirmative. A careful
inquiry should be made to all “No”
responses to determine whether:

There is an omission or shortfall to

a fiduciary’s procedures; and/or

The question is not applicable to

the fiduciary.

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CAFE – INVESTMENT MANAGER ™

CAFE
Consultant’s Assessment of Fiduciary Excellence
The CAFE (Consultant’s
Level II Verification
Assessment of Fiduciary Excellence)
is intended to provide:
Defining a
Global Standard of Excellence
for
Investment Managers
1. Guidance to consultants who are
For organizations that manage mutual funds, collective trusts, unit trusts, and separately managed accounts. providing consulting services on
the Practices;

2. Structure to the CEFEX

Cefex
c/o QMI (North America)
20 Carlson Court, Suite 100
Toronto, Ontario
Fiduciary360
438 Division Street
Certification process.
M9W 7K6 Sewickley, PA 15143
(416) 401-8702 866-390-5080

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BENEFITS OF DEFINED POLICIES AND PROCEDURES

1. Provides a checklist of prudent investment fiduciary
practices.

2. Serves as a practicum for all parties involved with

investment decisions.

3. Potentially helps increase long-term investment

performance by identifying more appropriate
procedures.

4. Helps uncover investment and/or procedural risks.

5. Encourages investment committees to compare their

practices and procedures.
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 THE UN-FIDUCIARY FLOW CHART
Yes Did investment performance meet No
expectations?

Yes Did you mess with the No

Don’t mess with it! portfolio?

No
Does anyone know? Will you be held
responsible?
Yes
Yes No
Can you blame anyone else?
Yes No

Hide it!

No Problem You have a problem!

Copyright © 2006, Fiduciary360.

Donald B. Trone, AIFA®

don@fi360.com
Foundation for Fiduciary Studies
(412) 741-8140
Center for Fiduciary Studies
Fiduciary 360
Fiduciary Analytics
438 Division Street
www.fi360.com
Sewickley, PA 15143

Don Trone is the CEO of Fiduciary360, which coordinates the resources of the Foundation for Fiduciary Studies; the Center for
Fiduciary Studies, which operates in association with the University of Pittsburgh’s Katz Graduate School of Business; and Fiduciary
Analytics, which develops Web-based tools to support the decision-making process of investment fiduciaries.
In 2005, Don was selected to the prestigious IA25, the listing of the twenty-five most influential people in the investment advisory
industry. In 2004, The Center for Fiduciary Studies was selected to provide fiduciary training to the Directors of the Federal Retirement
Thrift, the retirement plan for 3.2 million Federal employees, including members of Congress and the uniformed services. The Federal
Retirement Thrift is the largest defined contribution plan in the world. In 2003, Don was appointed by the U.S. Secretary of Labor to
represent the investment counseling industry on the ERISA Advisory Council.
Don is co-author of two industry bestsellers, Procedural Prudence and The Management of Investment Decisions (McGraw-Hill
Publishing), and led the development of the fiduciary handbook, Prudent Investment Practices.
Don graduated as president of his class from the United States Coast Guard Academy, and with honors from the U.S. Naval Flight
Training Program in Pensacola, Fl. He served on active duty for ten years as a long-range search and rescue helicopter pilot. He is the 1997
recipient of the U.S. Coast Guard Academy Alumni Medal of Achievement for his distinguished military and business career. Don
received his Master’s degree in Financial Services from the American College, and has completed post-graduate studies at Pittsburgh
Theological Seminary and Trinity Episcopal Seminary.

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