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A Cascading Behavioral Roadmap for Fulfilling Fiduciary Duties

By Neal Shikes, CRPC®


Fulfilling fiduciary duties is an outcome of successfully integrating processes and methodologies that require different skillsets. 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.

Neal Shikes has been a Registered Financial Services Industry professional for over 20 years and a Chartered Retirement Planning Counselor, CRPC®. He is also the "Willing Fiduciary" (http://willingfiduciary.com/) associated with Counsel Fiduciary LLC (http://counselfiduciary.com/) and the "Trusted Fiduciary" (http://www.trustedfiduciary.com) and principal associate for Thornapple Associates a provider of Expert Witness Services (http://thornapple.net/).


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