Anytime we receive the same or similar questions a few times within a short time frame, we're normally thinking that it is probably a good topic for a blog post. This particular question is one we have heard in the past, but has taken on a different twist more recently. Previously we would hear, "how can I convince prospective clients that they need to hire an advisor who will assume much of, or at least help them manage, their fiduciary responsibility? They don't have a sense of urgency that this is important and needs to be addressed." More recently, the question has changed to, "how do I respond to a current client that is questioning the need to keep me; not that they are looking for a better or cheaper advisor, rather they wonder if they need an advisor at all?"
The question has surprised us because our general sense is that investment stewards, the lay fiduciaries, are growing more uneasy in this volatile market and more likely to seek professional help. But there are some who are feeling quite the opposite, in which case they may be thinking one or both of the following:
- We have sufficient internal expertise to do this ourselves.
- Eliminating our investment advisor or consultant could save us a lot of money.
Investors (plan sponsors, investment committees for foundations and endowments, and individuals) may have sufficient internal resources to oversee the investment management process and nothing in the law prevents them from doing so. However, in their fiduciary role they are expected to ensure that investments entrusted to their care are managed with the skill and judgment of a professional. If they can't meet that high standard, and most can't, they should hire outside professionals. For plan sponsors, ERISA requires fiduciaries to get help when they need it. A big part of mitigating fiduciary risk is to seek professional help as appropriate.
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