Date post: | 08-Apr-2018 |
Category: |
Documents |
Upload: | national-press-foundation |
View: | 227 times |
Download: | 0 times |
of 30
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
1/30
Donald B Trone, AIFA
DEFININGA STANDARD FOR
THEDELIVERYOF
INVESTMENTADVICE
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
2/30
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
3/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
MANAGINGTHENATIONSINVESTABLEWEALTH
More than 5 million men and women serveas investment fiduciaries.
In turn, the 5 million manage more than80% of the nations liquid investable wealth.
As critical as their function is to the fiscalhealth of the nation, not a single federal orstate agency provides education and trainingto the 5 million.
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
4/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
MAGINOT MENTALITY
Following WWI, France built a series of interlocking forts to
protect itself from another German invasion. When WWIIbroke out, Germany simply outflanked the Maginot Line andeasily overran France.
Why did this formidable structure fail? The truth is, thestructure didnt fail the failure was Frances leadership in
recognizing the fundamental changes that were taking placein modern warfare.
Today, this form of leadership failure is referred to asMaginot Mentality.
Source: www.maginot-line.com
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
5/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
Example: The Fiduciary Effect*
Source: www.maginot-line.com
What does New Yorks Attorney General understand thatother regulators do not?
Spitzer understands fiduciary responsibility. He understandsthat there has been a fundamental shift in what the publicexpects from people who serve in a fiduciary capacity. The
message is clear:
If the public puts you in a position of trust, you are afiduciary, and you cannot parlay that position of trust forpersonal profit.
* Source: New York Times
MAGINOTMENTALITY
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
6/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
The vast majority of plan fiduciaries andparticipants rely on investment consultants (or
similar sounding title). Unfortunately,investment consulting is a poorly regulatedprofession; the normal attributes are missing:
No one regulatory body
No defined standards of care
No advance education and trainingrequirements
THEPOORLYREGULATED
PROFESSION
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
7/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
Brokers
Money Managers
Investment AdvisorsFinancial Planners (?)
Wealth ManagersFinancial Consultants
Estate PlannersBroker Consultants
Private Bankers
(Regulated by NASD)
(Regulated by newdivision of SEC)
(Regulated by SEC)
Suitability Standard Fiduciary Standard
InvestmentAdvisers
InvestmentConsultants
Brokers
PROPOSED REGULATORYOVERSIGHT
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
8/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
Society depends upon professionals to
provide reliable fixed standards in situationswhere the facts are murky or the temptations
too strong They represent the best a
particular community is able to muster in
response to new challenges.Dr. Robert G Kennedy, St Thomas University
THENECESSITYFORDEFINED
FIDUCIARYPRACTICES
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
9/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
ERISA
UPIA
MPERS
LEGISLATION
Employee Retirement Income and Securities Act
(Qualified retirement plans)
Uniform Prudent Investor Act
(Private trusts, foundations/endowments)
Uniform Management of Public Employees
Retirement Systems Act(State, county, and municipal retirement plans)
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
10/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
UNIFORMFIDUCIARYSTANDARDS OFCARE
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.
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
11/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
Analyze
Current
PositionStep 1
Diversify
Allocate
Portfolio
Step 2 FormalizeInvestment
PolicyStep 3
Implement
Policy
Step 4
Monitor
and
SuperviseStep 5
FIVE-STEPINVESTMENT
MANAGEMENTPROCESS
Reconfirm goalsand objectives
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
12/30
Copyright 2001, Center for Fiduciary Studies
Analyze
Current
PositionSte
1
Design
Optimal
PortfolioStep 2
Formalize
Investment
PolicyStep 3
Implement
Policy
Step 4
Monitor
and
SuperviseStep 5
Rebalance
STEPS IN THE INVESTMENT
MANAGEMENT PROCESS
Copyright 2001, Center for Fiduciary Studies
UNIFORM FIDUCIARY STANDARDS OF CARE
1. Know standards, laws, and trust provisions.
2. Prepare investment policy statement.
3. Diversify assets to specific risk/return profile of client.
4. Use prudent experts money managers and
document due diligence.
5. Control and account for investment expenses.
6. Monitor money managers and service vendors.
7. Avoid conflicts of interest and prohibited transactions.
The Matrix is constructed by using the five Steps of
the Investment Process as the horizontal axis, and
the seven Uniform Fiduciary Standards of Care as
the vertical axis.
Copyright 2001, Center for Fiduciary Studies
PRACTICES MATRIX
StepsStandards
1
7
1 5
CONSTRUCTING THEPRACTICESMATRIX
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
13/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
LEGAL CITATIONS, REFERENCES
AND SUPPORT
Each Practice is substantiated with a
reference to:
ERISA
UPIA
MPERS
When applicable: Case Law and Regulatory
Opinion Letter(s)
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
14/30
BENEFITS OFHAVINGPRACTICES
Reduce fiduciary liability by uncovering omissions.
Provides educational outline.
Should improve long-termperformance.
Enable fiduciaries to compare practices and
procedures.
Assist in prioritizing projects.
Establish benchmarks to measure progress.
Negotiate lower E&O premiums.
1.
2.
3.
4.
5.
6.
7.
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
15/30
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
16/30
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
17/30
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
18/30
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
19/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
PRIMERONPAY-TO-PLAY
1. Broker Pay-to-Play: SEC charges against MorganStanleys Partners List
Important to distinguish between paying for shelf
space and undisclosed compensation
2. Politician Pay-to-Play: Contributions to politicians inexchange for access to public funds
Watch also 529 Plans and Tobacco Settlement
3. Consultant Pay-to-Play: Selling services to moneymanagers
Most egregious because consultant is hired to be
an objective source
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
20/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
TRIANGULATINGTHESECS POSITION
Mutual funds cant direct
brokerage for shelf space
Investigation into consultant
pay-to-play schemes
Failure to repeal of broker-
dealer exemption?
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
21/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
MANAGERDUEDILIGENCE
Performance relative to peer group.
Performance relative to assumed risk.
Inception date of product.
Correlation to peer group.
Assets in the product.
Holdings consistent with style.
Expense ratios or fees.
Stability of the organization.
1.
2.
3.
4.
5.
6.
7.
8.
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
22/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
FIDUCIARYSCORE
Each field is given a numerical value and thenranked against other funds in its peer group.
Passed No fiduciary due diligence shortfalls.(Top Percentile)
Appropriate Shortfalls, but still ranks in TopQuartile.
Watch (2) (3) and (4) There are shortfalls; thefund may not be the best choice if beingconsidered in a search, but may not need to be
replaced (2nd and 3rd Quartiles).
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
23/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
xxx
xxxxxxxxxxxxxxxx
xxxxxxxxxxxx
xxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxx
xxx
xxx
xxx
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
24/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
UPPER PARTOF PAGE 1
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
25/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
LOWER PARTOF PAGE 1
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
26/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
UPPER PARTOF PAGE 2
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
27/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
LOWER PARTOF PAGE 2
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
28/30
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
29/30
8/7/2019 Broker vs. Advisor: The Need for Regulatory Reform (Don Trone)
30/30
Copyright 1999-2005. Fiduciary360
Foundation for Fiduciary Studies Center for Fiduciary Studies Fiduciary Analytics
Fiduciary 360
438 Division Street
Sewickley, PA 15143www.fi360.com
Donald B Trone, AIFA
(412) 741-8140Foundation for Fiduciary Studies
Center for Fiduciary Studies
Fiduciary Analytics
Don Trone is the president of the Foundation for Fiduciary Studies, the mission of which is to definethe practices that detail a prudent process for investment fiduciaries.Don is also the co-founder and Co-
Director of the Center for Fiduciary Studies, which operates in association with the University ofPittsburghs Katz Graduate School of Business. In addition, Don is the CEO ofFiduciary Analytics whichdevelops 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 inthe investment advisory industry. In 2004, The Center for Fiduciary Studies was selected to providefiduciary training to the Directors of the Federal Retirement Thrift, the retirement plan for 3.2 millionFederal employees, including members of Congress and the uniformed services. The Federal RetirementThrift 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 ofInvestment Decisions (McGraw-Hill Publishing), and lead the development of the fiduciary handbook,Prudent Investment Practices. He graduated as president of his class from the United States CoastGuard Academy, and with honors from the US Naval Flight Training Program in Pensacola, Fl. He servedon active duty for ten years as a long-range search and rescue helicopter pilot. In 1997 he was therecipient of the Coast Guard Academy Alumni Medal of Achievement for his distinguished military andbusiness career. Don received his Masters degree in Financial Services from the American College, andhas completed post-graduate studies at Pittsburgh Theological Seminary and Trinity Episcopal Seminary.