fi360 Blog

Welcoming a new team member to fi360: Kristina Fausti

We would like to welcome the newest team member to fi360, Kristina Fausti, Director of Legal and Regulatory Affairs.  Kristina's primary role will be to research, write, speak and otherwise represent fi360 on legislative and regulatory developments impacting investment fiduciaries.  She also will provide subject matter expertise to our training courses and the fi360 Toolkits, act as legal liaison to outside counsel and take on a compliance role.  Welcome to the team Kristina!

Kristina joins us after having served more than four years as special counsel in the Office of the Chief Counsel, Division of Trading at the U.S. Securities and Exchange Commission in D.C.  In her role, she provided formal and informal guidance to the public and other SEC offices and divisions on issues related to broker-dealer registration requirements under the Securities Exchange Act of 1934, and reviewed proposed rules and regulations affecting broker-dealer supervision and sales practices.

In our press release on her hiring, CEO Blaine Aikin had this to say, "Kristina brings us a depth of relevant knowledge and experience as we expand our company efforts to proactively impact the fiduciary environment for the benefit of investors.  Her addition provides a valuable resource to our team, our designee and subscriber member base, and the fiduciary community at large."

Kristina's move to Pittsburgh is also a homecoming for her, as she is a local who wanted to return to her roots.  She is currently living in the farm house where she grew up just north of our offices. 

The addition of this position should open up a number of opportunities for us to be more directly involved in the legal and regulatory conversations regarding fiduciary duties, as well as expand our offerings to designees and our advocacy efforts.  It is an exciting new addition that will promote creative growth at fi360.  Kristina will be attending our conference next week , so if you are attending (or still want to), make sure you say hello and welcome her to our community.

For more information about Kristina, visit our staff listing page, or email blog@fi360.com or email Kristina directly at kristina@fi360.com. 

The high cost of conflicts

In his newest Fiduciary Corner column for InvestmentNews, our CEO, Blaine Aikin, looks at the high cost of conflicts of interest and four suggestions for how a fiduciary should address them. 

Just the idea of trying to reconcile a conflict of interest with a fiduciary duty is difficult.  How can a fiduciary be trusted to put the best interests of their client first when they have a financial stake in their decision-making?  And, as Blaine mentions, it is more than a trust issue, it is a results issue. 

In the column, he cites two scholarly studies, one from the Financial Analysts Journal (requires membership to view entire article) that shows how disclosed conflicts of interest increase the operational risks for hedge funds and another from the Government Accountability Office showing that undisclosed conflicts results in underperformance in both DC and DB plans.

Given that conflicts both add to public distrust of the industry and are more likely to result in poor performance, Blaine offers his four conclusions on conflicts of interest:

• Avoiding, rather than disclosing and managing, conflicts is by far the more preferable option
• If a conflict must exist, full disclosure is an absolute must
• Conflict disclosures should be verified by regulators or independent auditors
• A self-regulatory authority for advisers is itself a conflict, and therefore the wrong solution for oversight

Make sure you read Blaine's full article at InvestmentNews.com and click the "Recommend" button at the top of the page if you like it.  And, make sure to leave your thoughts in the comments section below.

Fiduciary Q&A: Limited Partnerships

New Fiduciary Q&A:

Q: Are limited partnerships appropriate for inclusion into a profit sharing plan?

A: No investment is imprudent on its face.  Having said that, we also emphasize the fact that more care must be taken by the fiduciary in the case of selecting investments for benefit plans where participants are involved.  Ultimately, the decision should hinge on what is in the best interest of the participants and consider factors such as:

• Does the IPS authorize investment in the asset class represented by the LP; if not, does the IPS need to be changed?
• Are there any potential conflicts of interest that result from selecting the investment?
• Is adequate information available to do proper, objective due diligence on the LP?
• Does the fiduciary have, or is expertise available, to properly analyze the suitability of the LP as an investment option?
• Can the LP be monitored on an ongoing basis?

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If you have any fiduciary-related questions you would like to see answered in the Fiduciary Q&A, let us know by emailing blog@fi360.com or leave your thoughts in the comments below.

Who does the fiduciary standard work for?

There was a great column in the Wall Street Journal on Monday about the suitability vs. fiduciary standard debate, "Who will guard your nest egg?" by Jason Zweig.  Mr. Zweig describes how brokers held to a suitability standard are under no obligation to inform investors of two huge pieces of information: their conflicts of interest and cost. He also cites overwhelming numbers suggesting investors aren't aware of this difference in standards (The Rand report he cites can be found here).

In Mr. Zweig's column, FINRA chair Richard Ketchum is quoted, saying "It's time to get to one standard, a fiduciary standard that works for both broker-dealers and advisers. Both should have a fundamental first responsibility to their clients."

He is right about putting the clients' interests first.  The problem is that a fiduciary standard of care isn't meant to work for either broker-dealers or advisers, it is meant to work for investors.  When investors can't even understand the difference in standards, it is clear the system isn't working.  But the solution won't be any good if investors still are not able to presume that the investment advice they are receiving is only in their best interests. 

The fiduciary standard doesn't need to be gotten to, it exists, and two of the fundamental precepts are that conflicts of interest should be avoided or carefully managed to the benefit of the investor and investment expenses must be controlled and accounted for.  If the investment advice industry is ever to achieve the status of a trusted profession, the standard of care needs to be both clear and sufficiently high. As the regulators, legislators and the Obama administration begin to shape the new vision of who is protecting our nest eggs, they would be right to first remember who the fiduciary standard is supposed to work for.