Mom – The Practically Perfect Picture of a Fiduciary

September 27
00:05 2012

As part of Fiduciary September, we’re proud to present the fifth of a six part series exploring the six duties of all fiduciaries and what they mean for investors. “Essential to fiduciary conduct,” these core duties are defined by the Institute for the Fiduciary Standard and have been provided to by its President, Knut Rostad.

When you scraped your knee, who was there with iodine and some kind words? When you had a few sniffles, who rescued you with a handy Kleenex? When you had that scary dream, who rushed to your side with soothing ease, calming your fears before gently tucking you in?


Mom does a lot of things. And she does them all with a sense of care that goes beyond the call. She knows everything that’s important to you. And she knows how to do anything you need done. She has an amazing ability to find everything you lose. When you’re feeling down, she knows exactly what to say. Sometimes she gets it done with just a certain kind of smile that makes all your troubles go away.

How does she do it? If you know the answer to that, then you can explain the important fiduciary duty of Due Care.

If you can’t explain how Mom does it all and want to discover more about how you can see a fiduciary providing due care, then simply read on.

You can see evidence of Due Care in a fiduciary through two very apparent measures. First, you’ll want to see a demonstrable set of procedures. This is more than just a checklist, but a well-articulated rigorous process the fiduciary undertakes with diligence on an ongoing basis.

And this leads to one of the most often misunderstood maxims of picking investment options. Less sophisticated investors, and even some professionals, think a process should be judged on its ability to generate superior investment performance. In fact, no regulator would ever hold a fiduciary to this standard. Both the SEC and the DOL go out of their way to emphasize it is the consistent application of the stated process that they judge, not the process’s ability to produce large returns.

How can this be? Shouldn’t we always seek to maximize the performance of our investments?

Actually, and bluntly, no. This is sometimes the part of the whole truth that some advisors overlook but every adviser (quick quiz: why did I just spell the word differently) must always explain. Far too many investors feel they should measure success by how much their investments beat some arbitrary index (the S&P 500 being the most popular). If you acted like this in front of your mother, she’d probably admonish you and say, “If everybody else was jumping off the cliff, would you jump off the cliff, too?”

A fiduciary must handle each client with customized care. Some clients are better off not taking the risk to score outlandish returns. Other clients may need to swing for the fences despite the risk of failing miserably, for if they don’t they will fail miserably anyway. A fiduciary knows this, explains this and has a process in place to work through this.

But process alone cannot define a fiduciary’s duty to care.

Fiduciaries must not only work the process, but they must have the knowledge, experience and training to understand the various shades that process can assume. Remember when you didn’t want to tell Mom exactly was bothering you? Despite you’re not wanting to tell her, she had a way of finding out, even if you didn’t know what it was that was bothering you in the first place. That’s what experience buys – the ability to extract critical information from an unwilling patient in order to recommend what’s best for that patient.

As the word “care” implies, there’s a human element to its application. You can’t just enter a few numbers into a web-site and – presto! – come up with the answer to all of life’s questions. No, each person comes with his own set of unique circumstances and identifying possible solutions is more nuanced art than formulaic science.

Remember, Mom’s smile alone can sometimes make you feel better. There’s no science in that.

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Next: What’s a Fair Fee to Pay a Fiduciary  |

Interested in learning more about this and other important topics confronting 401k fiduciaries? Explore Mr. Carosa’s new book 401(k) Fiduciary Solutions and discover how to solve those hidden traps that often pop up in 401k plans.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

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  1. Kristine Linck
    Kristine Linck October 16, 09:27

    I have a complaint with the plan administrator and the employer regarding the distribution of my share of a 401K as the alternate payee. I have been overwhelmed with caring for my 90 yr old father with Alzheimers and recently my mother has been diagnosed with brain and lung cancer. I have not addressed my complaint and need direction to get back on track. I am also one of the lucky people with a countrywide loan, dealing with Bank of America for three years, getting nowhere. Is there assistance available to help me formulate my complaint without sending boxes of documents to the DOL, San Francisco office?

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