It's not unusual for those who are in a fiduciary role to be concerned about whether or not they are carrying out their responsibilities adequately. In light of the recent dramatic downturn in the market, these concerns have increased and many are asking the question, "how often should we get an outside opinion to make sure we are managing the investment assets properly?" Others wonder, "are we truly meeting our fiduciary obligations?"
There are two fiduciary practices that relate to this question. The first is Practice 1.4 in the Steward's Handbook. Under that Practice, Criterion 1.4.4 states; "Consideration is given to putting vendor contracts back out for bid every three years." This does not necessarily mean that a formal RFP (request for proposals) needs to be conducted (although that would be ideal), but there should at least be an informal RFI (request for information) to ensure that what was a good deal three years ago continues to be a good deal. The market is dynamic and fees may have gone down (or up), services offered may have expanded, and legal requirements may have changed.
Investment advisors or brokers that come through our training often times push back when discussing this criterion, asking why they should advise a client to periodically check to see if they are still the best candidate for the job. For the investment steward, an ongoing and critical part of their job is to ensure that the fees they pay for services provided are fair and reasonable. This regular review demonstrates clearly that they are addressing this criterion. For the investment advisor or broker, they set themselves apart and greatly enhance their creditability with the steward by helping to ensure the stewards meet this fiduciary requirement; even at the risk of losing their client. Most stewards are reluctant to replace an advisor or broker that clearly demonstrates they have the steward's best interest at heart; although they may need to reduce their fees or expand their services to meet competitive pressures. It also helps them to keep a close eye on the competition.
Practice 4.6 states that "There is a process to periodically review the organization's effectiveness in meeting its fiduciary responsibilities." This practice most directly addresses the initial question. The expectation here is that internal reviews are conducted more frequently, but at times it is necessary to have an outside party evaluate your process to ensure objectivity and impartiality. The annual review of the IPS (investment policy statement) to determine if it is still consistent with the actual process in place is a large part of the ongoing internal review. Those organizations that have their fiduciary house in order, however, eventually see the need and benefit of having an outside professional conduct an external review. The idea would be for the consultant to compare the steward's investment process to the fiduciary practices and determine what is working and what is not. A worklist is generated to address weaknesses, and, once the process is fully aligned (possibly over several years), consideration can be given to obtaining the fiducary equivalent of the "Good Housekeeping Seal of Approval," a CEFEX Certification.
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