It’s human nature that, in life, many tend to set a low bar that is intended to help keep them out of trouble. The thinking is, if we stay above that mark in whatever we are doing, then we will be just fine.
This tendency has invaded the financial services industry and has led to a virtual commoditization of
The focus has been on compliance rules and regulations, but this is a misguided approach that needs to change. The better approach? Aspiring to best serve clients and organizations through the guidance and application of best practices, strong leadership and stewardship.
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When it comes to governance, the majority of fiduciaries in the U.S. are generally lay fiduciaries, most of whom haven’t had formalized training in the field and may not fully understand their responsibilities. They often rely on financial professionals who are almost exclusively focused on
The danger is that it can lead to a malaise best characterized by what Don Trone, CEO of the
What can be done about this? How can you quarantine a fiduciary committee against the fiduciary flu? Can it actually be done? Fortunately, the answer is absolutely yes.
It just requires a change in focus — from rules and regulations to leadership and stewardship, and from minimum requirements to best practices.
Transforming from a focus on obligations to one built on an aspirational vision of obtaining and maintaining the highest standards is an achievable goal. It is embodied in the focus and purpose of the CBCF, a Public Benefit Corporation that blossomed in 2021 and is leading the charge.
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This approach is built upon two emerging constructs. First, neuro fiduciary, which is the study of key neurological markers that formulate what is considered an excellent fiduciary. This type of fiduciary operates with a precept of improving their decision-making process, and in turn, building client trust and loyalty.
The second construct is behavioral governance, or behavioral economics for fiduciaries. It’s an emerging area of research that studies the interrelationships between leadership, stewardship and governance or fiduciary responsibility. Key traits include leadership, or the capacity to inspire others; stewardship, or the discipline to protect the long-term interests of others; and governance, the ability to manage the details of a prudent process.
Combining the concepts and standards of neuro fiduciary and behavioral governance leads to an exemplary fiduciary. High moral and ethical aspirations are their hallmark. Going forward, this should be the new model for people serving in any fiduciary capacity, including the more than 17.5 million lay fiduciaries.
The CBCF offers a fully vetted behavioral governance assessment tool to identify leadership strengths and weaknesses. Trone joined forces with Sean Hanna, Ph.D., a pioneer in this research, to lead the assessment’s implementation. It identifies opportunities for improvement, as well as the methods necessary to implement those improvements. Research suggests that these behaviors and steps may have a significant impact on the quality of a person’s decision-making process.
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What can we expect out of this new approach?
The exemplary fiduciary will combine best practices with strong leadership and stewardship traits. They’ll maintain an aspirational vision of achieving the highest moral and ethical standards vs. an “obligations” view of simply maintaining the minimum level of compliance and following rules. One result should be that their retirement plans will be very poor targets for a lawsuit.
What will this mean for the industry, given it is largely comprised of lay fiduciaries? Those who become educated will no longer be led by fear in their decisions and actions. This approach will empower them to lead with the wisdom and confidence of a trained “exemplary” fiduciary.
