The active investing vs. passive investing argument has become passĂ©. Perhaps we may be nearing a new consensus where itâs no longer active OR passive, but active AND passive.
Contrary to popular press reports, economic theory clearly suggests paying high fees is justified. Hereâs the cruel irony and the greatest danger posed by the myth of high mutual fund fees: by taking back some of the responsibility normally delegated to professional advisers, an active fiduciary may in reality take on a greater fiduciary liability.
Investors have decided to flee two asset classes: stocks, perhaps because of their dramatic gains in the last six months; and cash, perhaps because of historically low interest rates. In either case, investors have signaled their lack of confidence in a near term recovery in the American economy.
Unless and until we can break the momentum of intertwined conflicts-of-interest, the greatest legacy weâll leave our grandchildrenâs children may be an outstanding bill to pay for spiraling public employee retirement benefits.
Diversification does not protect the investor when the entire asset class sinks. A recent study from Hewitt Associates suggests events may be placing plan fiduciaries in a historically precarious position.
Mutual fund shareholders canât have their cake and eat it, too. Indeed, a myth busting professor bluntly states âmandatory fee reductions are likely to injure fund shareholders.â
If trawling litigators seek to influence friendly juries in any case against an ERISA/401k fiduciary, the Time article offers a very good starting point…And ill-prepared fiduciaries should be shaking in their boots.
Hereâs an issue that can perplex even the most experienced ERISA/401k fiduciary: Whatâs the difference between a broker and a Registered Investment Adviser? More importantly, does the difference significantly raise the fiduciary liability for the typical fiduciary?
A written Investment Policy Statement can act as the cornerstone to regulatory and legal compliance. With this written IPS, the fiduciary has documented the justification of the appropriateness of the institutionâs mission and investment objectives. From this, the fiduciary can better evaluate and monitor the institutional fundâs investment performance. Finally, the written IPS may act as a safeguard to reduce fiduciary liability.
We donât need more regulation to prevent future Madoffs, we just need common sense (and, perhaps, a tad bit more enforcement of existing regulations). Here are five straightforward rules fiduciaries can follow to avoid their own personal investment Waterloo.
