Most investment professionals spend countless hours in sales and technical training, yet little time is devoted to developing their knowledge of the fiduciary standards of care for investment advisors. Two designations offered by the Center for Fiduciary Studies offer financial advisors the opportunity to enhance their fiduciary knowledge and demonstrate that they are serious about their fiduciary responsibilities. The Center for Fiduciary Studies offers the designations of Accredited Investment Fiduciary (AIF) and Accredited Investment Fiduciary Analyst (AIFA).
According to the Foundation for Fiduciary Studies, more than five million people have the legal responsibility of prudently managing someone else's money. Simply put, there are a lot of fiduciaries out there. Considering the multitudes involved in the investment management process, and the trillions of dollars at stake, one would expect that the profession would require investment fiduciaries to be informed of, and abide by, the same standards of practice as professionals in other fields, such as medicine, law, and accounting.
While the application of such standards to the investment profession has not been the norm in the past, recent cases of fiduciary negligence and resulting legislation have placed the focus on fiduciary responsibility and the need to be trained in it. As with most other professional designations, the AIF and AIFA and the process of obtaining them, requires some study time and successfully completing an exam.
The AIF Designation
The Center for Fiduciary Studies offers classroom and web-based training programs for those aspiring to obtain the AIF designation. The classroom-based program is a three-day course led by instructors from the Center for Fiduciary Studies staff. A one-day course combines both classroom and web-based instruction, and the web-based program can be completed over 180 days. Those new to the field of fiduciary study may want to consider the benefits of the lively discussions that can occur in the classroom setting, as well as the opportunity to ask questions.
Twenty-Two Prudent Practices
The AIF program provides detailed instruction on how to comply with the fiduciary standards of care, and introduces the participant to the 22 Prudent Investment Practices developed by the Foundation for Fiduciary Studies. These practices combine "the minimum requirements of pertinent legislation with industry best practices." Fiduciaries may be confident that they are meeting their obligations by holding to these practices. A client will benefit from using the expertise of an advisor with the AIF designation, as the advisor will be held to a standard of excellence to which others may not adhere.
The AIFA Designation
The AIFA program, the next level of fiduciary expertise, is a three-day classroom course offered to graduates of the AIF program. This course expands upon each of the 'prudent practices' and teaches attendees how to evaluate a fiduciary's compliance with these practices, which qualifies them to certify an organization's conformance with a 'fiduciary standard of excellence', as defined by the Foundation for Fiduciary Studies. By obtaining this certification, such an organization shows its retirement plan participants, investors, or donors that it holds itself – and its management of their money – to the highest of standards.
While graduates of the two programs can acquire an appreciation for and knowledge of prudent investment practices, through their achievement they also gain credibility. The investment advisory business is highly competitive, and prospects often evaluate multiple advisors before choosing one. By spending the time and money on further education, advisors demonstrate their willingness to obtain the expertise necessary to fulfill their fiduciary responsibilities to their clients.
As the public's awareness of fiduciary responsibilities has grown, so too have opportunities for consulting on fiduciary matters. The AIFA is well positioned to take advantage of these opportunities. For organizations which wish to ensure that their investment processes meet a fiduciary standard of care, AIFAs can perform consulting engagements to identify areas of non-conformance, and opportunities for improvement.
For example, if you have ever had the opportunity to witness the workings of the investment committee of a small charitable organization or small businesses retirement plan, you probably observed the lack of a structured process and defined steps for decision-making. The AIFA assessment approach offers a unique method to help bring structure and organization to a process that may otherwise be vulnerable to a rogue committee member or an overzealous investment service provider.
For organizations confident in their compliance with a fiduciary standard of care, those with an AIFA designation can provide an assessment that results in a Certification of Fiduciary Excellence. This certification can be used by the organization to demonstrate a high level of stewardship, which requires that the interests of those participants – potential donors, retirement plan participants, or other interested parties – be placed above the organization's own.
The Rewards of Continuing Education
With more money than ever being entrusted to the fiduciaries of charitable endowments, retirement plans, and investment advisors, the public wants to know that its money is being prudently managed. Growing awareness of fiduciary duties spikes each time an egregious instance of fiduciary misconduct is uncovered – as in the case involving the Enron retirement plans.
In the case of Enron, fiduciaries – including the company's top executives and board of directors – failed to comply with their fiduciary obligations to put plan participants' interests above their own. Among the many fiduciary failures documented by a lawsuit filed by the U.S. Department of Labor, they imprudently invested matching contributions in company stock, misled employees about the health of the company, and encouraged them to invest in more Enron stock, even as they knew the company was in decline. Through these and other actions they devastated their employees' retirement funds.
The Bottom Line
In response to rising awareness of fiduciary duties, lawmakers passed the Pension Protection Act of 2006, which shines the spotlight on fiduciary advisors, with provisions requiring annual audits by a prudent expert. AIFAs are qualified to perform audit services of eligible investment advice arrangements offered to retirement plan participants.
Growing public awareness, increased regulation, and the massive amount of money entrusted to fiduciaries have created the perfect storm for advisors who, via AIF and AIFA designations, can establish themselves as fiduciary experts.