Not all investment fiduciaries are created equally. Generally speaking, there are three types of investment fiduciaries, each with specific roles in the investment process. This is an important point of distinction for those who are just beginning to become familiar with the fiduciary concept.
The first type is the investment stewards. These are the trustees, investment committee members, and plan sponsors. While these individuals may have the least amount of investment training, they have the most responsibility. As the first on the fiduciary scene, they are responsible for managing all of the fiduciary responsibilities for a portfolio. Because successfully managing every fiduciary responsibility is beyond the scope of the typical investment steward, the onus is on them to delegate certain responsibilities to professionals who can. But regardless of what duties are delegated, their duties cannot be completely abdicated, as it is still their duty to manage the overall process, choose prudent experts appropriately, and monitor plan activities.
The second type of fiduciary is the investment advisor. They are the prudent experts who give advice to a plan. They fall under a wide variety of job titles, usually including the words "advisor," "consultant," or "planner." And, under current regulation, not all professionals who have those titles can be considered a fiduciary. Rather, fiduciary duty in their case is determined by facts and circumstances, beginning with whether they are providing comprehensive and continuous investment advice, the hallmark of an investment advisor who is a fiduciary. The specific fiduciary duties to which they must adhere is dependent on the role they are serving. They may be engaged to perform a specific role, in which case they would only be responsible for fulfilling that role to a fiduciary standard. However, if an advisor begins performing a role, even one for which they are not contractually engaged, the expectation is they will fulfill that role to the fiduciary standard.
Finally, there are the investment managers. Managers are those who make individual securities selections to implement an investment mandate. This would include money managers for mutual funds, separate accounts, and exchange-traded funds. Their fiduciary duty arises from their discretion over assets.
This is a simplistic look at the three basic types of fiduciaries for the fiduciary beginner. In future Fiduciary Basics posts we'll look at the three types in greater detail and go over the specific duties each has to the individual investor and how their role fits into the overall investment process.
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