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A great place to start

Why is fiduciary excellence so important?

Because, according to the Centre for Fiduciary Excellence (CEFEX), “lack of it in an investment program can both undermine investment performance and be predictive of poor performance. Future bad performance can be predicted by identifying deficiencies in fiduciary practice.”

What is the Global Fiduciary Standard of Excellence?

The Global Fiduciary Standard of Excellence is defined by a principle-driven set of Practices that are the foundation for the trust placed in investment fiduciaries by their clients or beneficiaries. This is a fixed, reliable Standard.

• Practices define the scope of the Standard, which can be thought of as a framework for a disciplined investment process.

• Criteria within each Practice define the scope of the Practice and the details that comprise the Global Fiduciary Standard of Excellence.

It is important to note that the Standard is fixed – it is the goal that must be attained by CEFEX Certified firms. The Practices are flexible. Since fiduciary liability is determined not by investment performance but by whether a documented, prudent process was followed, the principle-based Practices can be adapted to all types of portfolios.

There are a total of 46 different investment fiduciary Practices: 22 of these apply to Investment Advisors and Investment Stewards; all 46 apply to Investment Managers.

What is CEFEX?

CEFEX stands for the Centre for Fiduciary Excellence. CEFEX is a global initiative to define and promote Global Standards of Fiduciary Excellence and to serve as an independent rating and certification organization. Fi360 is a founding member of CEFEX (more below on fi360).

As a certifying organization, CEFEX also defines formal procedures to assess whether an investment fiduciary is in conformance with defined practices. CEFEX provides independent recognition of a firm’s conformity to a defined Standard of Practice. It implies that a firm can demonstrate adherence to the industry’s best practices, and is positioned to earn the public’s trust. Firms that successfully complete Certification are registered with CEFEX. This registration serves investors who require assurance that their investments are being managed according to commonly accepted best practices.

What is fi360 or Fiduciary360?

Fiduciary360’s (fi360’s) mission is to promote a culture of fiduciary responsibility and improve the decision-making processes of investment fiduciaries. Fi360 offers training, tools and resources and for fiduciaries and those who provide services to fiduciaries.

Organized within the framework of a four-part Fiduciary Quality Management System, the principle-driven Practices and Criteria that comprise the Global Standard of Fiduciary Excellence were developed by fi360 and are outlined in a series of “Prudent Practices” reference handbooks for Investment Advisors, Investment Managers and Investment Stewards. Legislation, case law and regulatory opinion letters substantiate practices in the US editions of these handbooks.

Practices in the Investment Managers handbook also represent the investment industry’s best practices, as proposed by these respected organizations:

• CFA Institute – The Asset Manager Code of Professional Conduct adopted in 2005 by the CFA Institute
• EFAMA – The Code of Conduct for the European Investment Management Industry proposed in 2006 by the European Fund and Asset Management Association (EFAMA)
• RSWG – The Risk Standards for all Institutional Investment Managers and Institutional
Investors adopted by the Risk Standards Working Group (RSWG), a private initiative set in 1996 by US investment professionals

Other sources include:

• IMA – Investment Management Association on the governance arrangements of UK authorized collective investment schemes
• IOSCO – The International Organisation of Securities Commissions
• BIS – The Bank for International Settlements’ (BIS) Risk Based Capital and Joint Forum

What is the Assessment Process?

The process for Certification of a firm’s investment fiduciary excellence includes a CEFEX Assessment, conducted by an Accredited Investment Fiduciary Analyst™.

The Certification Assessment is based on the international standard, ISO 19011: guideline for quality and/or environmental system auditing. It has been adjusted to align with the needs of the investment industry. Anyone familiar with Quality Management Systems (QMS) and the ISO 9000 family of standards, which focus on organizational structure, procedures, processes and resources, will be very comfortable with the Assessment Process.

Details about the Assessment Process are available below.

I’m a business owner with an employee retirement plan. What is my fiduciary responsibility?

Employers who sponsor retirement plans often do not realize that they have fiduciary obligations to the plan’s participants. The Employment Retirement and Income Security Act (ERISA) imposes an obligation on the Retirement Plan Sponsor: To act solely in the interests of participants.

For those involved in managing the investment of plan assets, including trustees and the investment committee, ERISA imposes an obligation: To follow a prudent investment process.

What does this mean?

A prudent investment process involves a number of practices, which include:
• Identifying individuals who are the plan fiduciaries and obtaining their written acknowledgment of their fiduciary status
• Establishing quantitative and qualitative criteria for the selection and evaluation of investment options
• Establishing a written investment policy statement to govern the prudent practices to be followed, i.e. the retirement plan’s business plan
• Conducting due diligence and documenting the process with respect to the selection of investment options and service providers
• Following applicable “safe harbor” provisions
• Monitoring, on a scheduled, periodic basis, investment performance, evaluating whether to change an investment option that falls short of selected criteria and documenting the process to provide a critical written record
• Monitoring investment expenses and service provider fees on a periodic, scheduled basis and disclosing the results to plan participants
• Ensuring best execution, appropriate use of “soft dollars” and proper voting of proxies
• Avoiding conflicts of interest and self-dealing

FiduciaryPath can assist a retirement plan sponsor in establishing a documented investment fiduciary process to help employers meet their fiduciary responsibilities and mitigate their fiduciary liability.

What is an Accredited Investment Fiduciary Analyst?

According to fi360, “Accredited Investment Fiduciary Analyst™ designees are the few people in the country with knowledge in both a prudent investment process and assessment principles, qualifications that are becoming increasingly desired and demanded by both the industry and regulators.

An AIFA® designee’s primary function is to perform, or assist in, assessments of an Investment Steward’s, Investment Advisor’s, or Investment Manager’s conformance to a Global Fiduciary Standard of Excellence using fi360′s ISO-like procedure of assessment. AIFA designees possess the ability and knowledge to advise clients of deficiencies in investment processes. It is also the required mark to perform a CEFEX Fiduciary Certification, the independent recognition of a fiduciary’s conformity to all fiduciary Practices and Criteria.”