The 3 Types of Investment Fiduciaries

Allan Henriques

 

 

There are three different types of investment fiduciaries. While their roles often intersect and become interdependent to fulfill various fiduciary responsibilities, .

the three types of investment fiduciaries are:

 

Investment Steward

Investment Advisor

Investment Manager

Investment Stewards

Allan Henriques

Investment Stewards are the “Big Dogs” as they generally bear the overall responsibility of selecting and approving Investment Advisors and Investment Managers – and they:

  • have direct oversight of the investment portfolio; and
  • are responsible for the institution’s investment decisions and day-to-day management.

But while Investment Stewards are powerful fiduciaries, too often they are: 1) not aware of their position, entrusted with the organization’s assets, and, 2) not typically in the investment business.

Yet their role as fiduciaries places them in a position of trust and confidence that requires that they act with loyalty, due care — competence, and obedience. So they must prudently manage the assets in the best interest of:

  • a nonprofit’s mission and donors’ wishes;
  • a retirement plan’s beneficiaries or participants;
  • a government’s or tribal nation’s beneficiaries, members, citizens, and taxpayers.

One of the great ironies is that although they are ultimately responsible for managing the investment process in a knowledgeable, prudent and responsible manner, there are no training or experience requirements for Investment Stewards.

Consequently, understanding these responsibilities and distinctions is crucial.

We can help!

Investment regulation and law encourages Investment Stewards to hire prudent experts to help them manage the assets, providing Investment Stewards with some safe harbors and relief from some of their fiduciary duty. But the Stewards must select these experts with due care and monitor them diligently, and periodically review whether it is in the best interest of the organization to keep or change service providers.

What’s a Steward to do?

FiduciaryPath can help, with training, starting with the Language of Fiduciaries, a key to deciphering investment terms that too often sound like jargon. Our team can also help you put a prudent process in place to select prudent experts and other service providers. Fiduciary Investment Advisors and Investment Managers can take (always in writing) some of the fiduciary burden from Stewards’ shoulders.

Investment Advisors

Allan Henriques

Investment Advisors are typically professionals with training and experience (although, be aware that job titles like “Financial Advisor” don’t tell you who is fiduciary and who is not, and some “financial company representatives” are not fiduciaries).

Where the fiduciary Investment Advisor provides advice for a fee, he or she must act in the best interests of the nonprofit and its beneficiaries. In order to avoid confusion, it’s a best practice to have the Investment Advisor acknowledge his or her fiduciary status in writing in the service contract.

Sometimes the Investment Advisor will recommend or select the investments, other times they will recommend or select investment Managers.

    Investment Managers

    Allan Henriques

    Investment Managers are usually given written permission by the Investment Steward to act as a Prudent Expert and make investment decisions. This is called “full discretion” and it’s a best practice to outline whether this is the case, or not, in the Investment Policy Statement.

    The Investment Manager selects the actual investments and implements the mandate (Investment Policy Statement) of the Investment Steward.

    Investment Stewards can potentially insulate themselves from the Investment Manager’s decisions and actions, but only where the Steward prudently selected and does ongoing monitoring of the Investment Manager.

    Allan Henriques

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