Roland|Criss Blog

When the risk outweighs the reward: The business (or personal) case for hiring an expert

by Ron W. Hagan

I learned an important lesson while planning our family's annual vacation to Colorado this past December. We anticipated taking our Suburban on the 12-hour road trip, ­an appropriately hardy vehicle for facing treacherous mountain roads at wintertime. As a conscientious driver and shepherd of my family, I took the Suburban in for a standard check-up before we left for the trip. The car was diagnosed with a cracked U-joint. The auto mechanic said it would probably be fine for driving around town, but that to take it on a high-speed, long distance jaunt would be risky.

In my capacity as caretaker and steward for my family, I didn¹t question the cost or give a second thought to the inconvenience of the car repair. I would have done ­and did ­whatever was necessary to gain assurance that my family would be safe during our travels.

At that moment, I realized, "How is this different from any leader who is a steward of his employees?"

There are always "quick fixes" and do-it-yourself approaches, but when you are most invested in the outcome, an expert is well worth the cost to be able to insure that those you care about are safe and secure.

Have you experienced a moment when you were glad that you consulted an expert for an important solution or fix, instead of trying to do it yourself?

Carrying The Stone

by Ron W. Hagan
Executive Vice President - Roland|Criss

I just read an invitation from a service provider promoting an event for 403(b) retirement plan sponsors.  This one is no different than the growing number of events hosted by providers to “help” plan fiduciaries understand their NEW fiduciary duty and help “mitigate” fiduciary liability. 

Don’t get me wrong, spreading the message of the need for high quality fiduciary practices is essential to fulfilling ERISA’s mandate to operate retirement plans in the exclusive interest of the participants.  Contrary to the idea advanced by many service providers, however, these practices have always been required of fiduciaries.  There is nothing new.

We’ve been committed to carrying the stone for plan fiduciaries for the last 25 years.  So why are service providers just now talking about mitigating your liability?  It’s because you are beginning to ask for more disclosures of their work and fees.

From our vantage point, organizational leaders and managers are asking for help; help in shoring up their gaps in knowledge, experience, and processes.  Their authentic pursuit of best practices fuels our firm’s associates’ passion to create the next great “TQM” movement.

There is a void in most all retirement plans; the void is the lack of certainty that critical processes are being executed well and in accordance with ERISA’s requirements.  It could exist in your plan as well.  Incidentally, just try to get one of your retirement plan’s current vendors to certify that your fiduciary system complies with ERISA!  My bet is that in spite of their posturing, they can’t do it and won’t.

Newsflash: Service providers cannot takeover your liabilities.  Furthermore, so-called “investment fiduciaries”, which includes investment advisors, are not liable for anything that is not specified in their contract.  Here’s an example of how this can trick plan sponsors into thinking they are getting something important when they actually get nothing at all.

A financial consultant registered under the Investment Advisers Act of 1940 is automatically a fiduciary to any and all of its clients.  They would include private individuals, corporations, and so on.  The fact that the consultant is a fiduciary under that Act does not make it an ERISA fiduciary.  In order for a plan sponsor to get the benefit of having an “investment fiduciary” on their plan, the consultant’s contract needs to acknowledge that it is an ERISA fiduciary, too.  Most of the hundreds of investment consultants we’ve encountered imply ERISA status when they actually avoid it with a vengeance.  If you rely on a financial consultant for “”fiduciary services,” you may want to check their contract again.

Getting rid of the uncertainty is easy.  Roland|Criss is fully devoted to aligning plan sponsors with ERISA.  We inspect agreements, scopes of services, and legal accountabilities.  Since we offer no other services, our opinions are unbiased and impartial.

Keep pressing in!  In order to succeed, plan fiduciaries need to think in terms of workflow process, focus and experience, and possibly the most important requirement, eradication of conflicts of interest.

Join us in the movement for fiduciary excellence.

Hoodwinked

by Ron W. Hagan
Executive Vice President - Roland|Criss

Have you ever been influenced slyly by someone who feigned good intentions only to cheat you out of your hard earned money or your perception of value?

Maybe you didn’t end up getting as much as you thought you’d get for that car you traded in. Or maybe that vacation wasn’t as “all inclusive” as the sales person promised.

Being cheated, beguiled, bamboozled and duped stings doesn’t it?  While it’s a blow to the mind, it has an even sharper edge to the heart.  As I think through this, it’s one thing to make a mistake; the human mind will adapt and learn how to avoid such a blunder in the future. However, the heart can quickly distrust.  Overcoming broken trust is a much different process and has wide scale ramifications in the world of financial stewardship.

Where am I going with this anyway? In our independent fiduciary business, we are known for making retirement systems and charitable organizations safer places for putting money.  We do this by testing intensions, evaluating decision making processes, and determining the fairness of the fees that are charged to investors who don’t know how to discover these on their own.  It is a wildly purposeful mission.  

Excelling as a fiduciary requires that you persist in pursuing the best; to not waver in pressing in to what is right on behalf of those who are depending upon you.  In our capacity, it is highly rewarding to help interpret and define the difference between what is best from what is deceptive. In the investment industry, these lines are very murky.

Fiduciary Yardsticks

by Ron W. Hagan
Executive Vice President - Roland|Criss

Renowned big thinker and trusted management guide, Peter Drucker, wrote, “Each institution will be the stronger the more clearly it defines its objectives.”  He further stated, “It will be more effective the more yardsticks and measurements there are against which its performance can be appraised.”

In the realm of stewardship, such as boards of directors, retirement plan committees, and foundation investment committees, how do we follow the guidance of Mr. Drucker?  Is it possible to meet objectives if none are conceived, thought through, and owned?

Is it possible that in these fiduciary environments our attention has been diverted?  Intentional or not, many governing bodies find themselves in a strategic quandary; reviewing and monitoring information that has no connecting point to stated objectives. 

This happens in board rooms across the country, typically around investment related matters where third party consultants are relied upon to define and measure performance for board and committee members.  In this scenario the fiduciaries’ efforts are analogous to flying a kite without a string.  There is no connection.

In these days, when the word 'fiduciary' has seen more play time, air time, and court time than the last 100 years combined, it might well be worth the time for boards and fiduciary committees to devise agame plan to determine their objectives.  And, of course, I would be remiss if I did not suggest that you get some coaching that is based on a proven track record. 

If Peter Drucker were with us today, he might very well conclude our conversation with his question: “Are your performance yardsticks appropriate to your objectives?”

We can help you.

It’s Not Only Stupid, It’s Dangerous.

by Ronald E. Hagan 
CEO, Roland|Criss

 

The results of an eye-popping survey* conducted by consumer groups, financial planning organizations, and an association of states’ securities regulators were announced this week.  The survey revealed that investors are oblivious to the vast differences in legal standards among the various classes of “investment advisors.”

  

 What’s wrong with this picture?  While nearly all of the respondents (97%) believe that stockbrokers, investment advisors that serve pension plans and foundations, and insurance agents should put investors’ interests first (the “fiduciary duty”), very few of them said they know that various laws say otherwise.

  

For example, sixty percent of the investors surveyed said they thought insurance agents had to uphold a fiduciary duty, which isn’t true, even though ninety-six percent said the fiduciary requirement should include insurance agents that sell annuity-based products.  (It’s no surprise that insurance agents are the most outspoken opponents of the government’s current effort to make a universal fiduciary standard apply to all investment advice givers.)

 

More Evidence of Confusion

 

Thirty-four percent of the investors surveyed believe that investment advice is the number one service provided by stockbrokers.  The law under which stockbrokers are licensed defines their primary role, however, as buying and selling stocks and other securities, with no requirement that they place their clients’ interests first; no fiduciary duty here!

 

Seventy-seven percent of respondents admitted they knew that registered investment advisers ("RIA") are licensed under a federal fiduciary standard.  Most respondents did not realize, however, that RIAs’ can escape consequences if they can get their clients to retain “full discretion” over investment decisions.  (This is the common practice among RIAs in the pension and foundation arenas.)

 

The Laws are Stupid and Dangerous

 

The survey proves what many experts in fiduciary standards already knew…investors have been bewitched by unfair sales tactics and bewildered by contradictory claims made by competing investment advice providers.  When the truth emerges, many investors feel stupid…some even angry.  Investors are not stupid, though.  The same cannot be said about the laws that empower stockbrokers, RIAs, and insurance agents to ply their trade.  Not only are the laws stupid, they are dangerous.  The danger lies in the widespread, but wrong assumption held by many pension and foundation executives that their investment advisor carries the fiduciary burden.  Many executives are finding out about the error in their assumption, the hard way.

 

Here’s How You Can Make Your Fiduciary Job Safer

 

In January 2011, the U.S. Securities and Exchange Commission will appear before the U.S. Congress to ask for an addition to the new financial services law.  The SEC wants a universal fiduciary standard to be added to the law.  The amendment will embrace any person or firm that delivers investment advice; pension consultants, RIAs, stockbrokers, insurance agents, and financial planners.

 

As you might guess, the investment advice providers are up in arms over the SEC’s initiative.  They have been fighting for position for months.  Pension plan sponsors and foundations have been mostly silent.  Why?  There are two likely reasons: (1) the vast majority of investment advisors benefit from the current state of confusion among investors and are content to let their clients' remain out of touch with the fiduciary debate, and (2) the fiduciary interests of plan sponsors and foundations are not well represented at the regulatory level.

 

You should be counted on this issue.  Send a comment to me on this Blog and I will see to it that your voice is heard when the Congress begins debating the issue.

 

*The Survey

Conducted by Infogroup Inc., which provides market research services, the survey tested the reactions of nearly 1,400 people that defined themselves as investors.  The survey’s sponsors included AARP, CFA, Certified Financial Planner Board of Standards, Inc., Financial Planning Association, Investment Adviser Association, National Association of Personal Financial Advisors, and the North American Securities Administrators Association, which developed the Uniform Prudent Investor Act (“UPIA”).

Fiduciary Solutions

Roland|Criss offers the easiest to use and most effective fiduciary risk management tools available for retirement plan sponsors, public pensions, and foundations.  Get answers to your concerns here.