In Kautt's experience, many trust companies fail to fully disclose all fees and costs or opt to bury them in tiny type on a back page of a document. "Nation's Bank, now Bank of America, has taken some of our clients out of stocks into proprietary mutual funds," Kautt says. "They disclosed it, yet it's still an inherent conflict of interest. But who are you going to call, Ghostbusters?"
Many advisors have witnessed fiduciaries blithely circumventing similar conflicts. Kautt hopes that clearly defined practice standards would make big institutions think twice when confronting such situations.
Trone says that in addition to providing audit and practice standards, the Center for Fiduciary Studies' certification program would enable financial advisors to qualify as expert witnesses in litigation. He predicts lawsuits will become increasingly common as pension-plan participants and trust beneficiaries find fault with those overseeing their money. More commonly, however, he says, advisors will benefit from the center's programs "to elevate their practice standards inside their own offices."
Trone says virtually every organization that regulates or represents fiduciaries will benefit from the center's standards. These "stakeholders," as he calls them, range from the SEC and the Department of Labor to the American Bar Association, FPA and NAPFA.
For his part, Gibson believes that in the near future, investment professionals will once again opt for process-oriented methods to make policy decisions that will improve investment results so that "you don't have to rely on remarkable investment skills." Indeed, so often the performance of the managers with the hottest hands turns out to be transitory.
Currently, the center is a for-profit enterprise, but its founders expect it to convert to a not-for-profit corporation "in the not-too-distant future," Trone says. That's because he expects its standards to be adopted as public policy, and therefore for the center to become a public-policy institute.
The Center for Fiduciary Studies has set the table for the profession to sit down together and agree on standards. The menu does not include fava beans and a nice Chianti. It's the meat-and-potatoes of managing other people's money. That is so commonplace, the only surprise is that nobody has written the recipe down before.