"This is one of these things where when people stop to think about it, they slap their heads and say, 'Why didn't I think of that?'" says Donald B. Trone, a financial advisor in Pittsburgh. "This is something we need to address, and address rather quickly."

 To that end, Trone and a colleague, Roger C. Gibson, have founded the Center for Fiduciary Studies, which has codified audit and practice standards it expects to become the industry norm. The standards call for formalized processes to guide the investment of other people's money and to set standards for due diligence, such as the minimum competence of money managers. They would apply to professionals, such as financial advisors, and lay people, such as church trustees.

 Trone and Gibson estimate 8 million to 10 million Americans fit this bill ? and have, at present, no firm rules to guide their actions. The duo expects their rules to be adopted by state and federal regulatory agencies, or at least to inspire the creation of similar standards that are eventually embraced by regulators and the fiduciary world.

 According to Gibson, the idea of establishing the center originated in the fall of 1998, when Trone was working at Morningstar using its database to conduct money-manager due diligence. "Don called me and asked if we could collaborate on some projects," Gibson explains. "That's when the idea arose. Don already had some experience in training fiduciaries."

 The center is associated with the University of Pittsburgh's Katz Graduate School of Business, which provides offices and shares in the center's revenue, which comes from educational programs built around the fiduciary standards. "It was Don's idea to associate it with a graduate business school," Gibson says. "And it so happens that the University of Pittsburgh has a gorgeous executive-training center after they spent millions rehabilitating the largest Masonic temple [which was given to the university] in the Western world. It was perfect."

 Both Trone and Gibson own firms that are headquartered in Pittsburgh. Gibson Capital Management caters to high-net-worth individuals and institutions. Gibson is also author of Asset Allocation: Balancing Financial Risk and is generally viewed as a pioneer within the advisory community in the development of asset-management strategies.

 Trone, co-author of two books, The Management of Investment Decisions and Procedural Prudence, is president of the Investment Management Council, which caters to advisors, providing them with asset-allocation software, templates for investment-policy statements and research on mutual funds and money managers.

 Trone notes his research stresses managers and funds "that meet fiduciary due-diligence criteria." The remarkable fact that no comprehensive standards existed to set these criteria helped inspire the creation of the Center for Fiduciary Studies, which opened its doors in October 1999. Since then, the center has held about six courses.

 The center's standards are straightforward and, on the surface, not controversial. They direct fiduciaries to:

  • Prepare written investment policies,
  • Diversify portfolio assets,
  • Use professional money managers,
  • Control and account for all investment expenses,
  • Monitor the activities of service providers, and
  • Avoid conflicts of interest.
    They also flesh out each of these areas. For example, a suitable money manager must have had the same portfolio-management team in place for at least two years and manage at least $75 million.

 The center defines fiduciaries as:

  • People who hold title of property for the benefit of others, such as members of investment committees and trust executors;
  • People with discretionary control over assets, such as money managers and some investment advisors; or
  • Professionals, such as financial advisors, accountants and lawyers, who render investment advice.
    The center's standards are designed to allow fiduciaries to be audited by independent third parties to assure that their practices are fair, reasonable and professional. At the same time, financial advisors who adhere to them would implicitly qualify to work for corporate investment committees, foundations, trusts and other fiduciaries.

First « 1 2 3 » Next