401(k) Specialist Issue 1 - 2015 - 35

PROVIDER PERSPECTIVE by Mario C. Giganti
Effective Fiduciary Quality Management
Systems: Begin with the End in Mind
AS AN ADJUNCT FACULTY MEMBER OF fi360, the sponsor of the Accredited Investment
Fiduciary and Accredited Investment Fiduciary Analyst designation programs, I've taught
hundreds of 401(k) advisors the " Prudent Investment Process. " What I've learned by doing
so is that following a defined prudent investment process consistently boils down to simply
having good practice management systems in place.
The process foundation involves foursteps
collectively known as the Fiduciary
Quality Management System (FQMS), which
is analogous to the ISO 9000 Continuous
Quality Improvement Process. As many
401(k) professional advisors know, the
steps in the process are as follows: organize,
formalize, implement and monitor.
One of the key foundational aspects
associated with implementing the Prudent
Investment Practices is to work your way
backwards, actually starting with the monitoring
process.
I first encountered this counter-intuitive
notion back in 2002; I may have been advising
five 401(k) plan clients at the time. I
had so few clients, I could do all the work
myself. However, as our 401(k) practice
grew, so did the number of additional custodians, record-keepers, third-party administrators
and a host of investment options to track. Organizing it all was suddenly very difficult. New
systems were needed, and I began to truly embrace the Four-Step FQMS Process. As I did,
and as I later taught it to other advisors, the reason for beginning with the monitoring
process crystallized. I was able to make sure each of my clients were following the Prudent
Investment Practices on a continuous, ongoing basis by running monitoring reports at any
point on any one client.
And not only by client, but across the entire business as well by running a " Global Fiduciary
Monitoring Report, " which accumulates the balances across all of our retirement plan
clients to determine if any investment options need more scrutiny. It took on even more
importance once we had other advisors working directly with retirement clients.
The Center for Fiduciary Excellence or " CEFEX " soon opened, and the Global Fiduciary
Monitoring Report became one of the main auditing and assessment points. How could
the auditor (or analyst in CEFEX-speak) determine that the advisory firm was in fact monitoring
every client and every investment options? Easy-understand what the population
of clients and investment options were in the entire firm and then sample a handful to
verify monitoring was being performed at the client, or plan, levels.
Performing it solely for individual clients is inefficient and hard to quantify if they are
''One of the key
foundational
aspects associated
with implementing
the Prudent
Investment
Practices is to
work your way
backwards,
actually
starting with
the monitoring
process.
''
adhering to practices at the firm level overall.
It also creates the possibility of shortfalls
for the 401(k) sponsors with regards
to monitoring duties (think of the Supreme
Court's ruling in the Tibble vs. Edison case)
and possible liability for the advisory firm.
So remember, one of the first steps in
practice management for 401(k) advisors
is to work your back through the Four Step
Process and to start with monitoring.
Mario C. Giganti is an owner and chief investment
officer of Cornerstone Capital Advisors, a fee-only
registered investment advisory Firm in Ohio. He is
also an adjunct faculty instruct for fi360, a contributing
author of the Prudent Investment Practices
for Investment Advisors and Stewards and a CEFEX
Registered Analyst.
INAUGURAL 2015 | 401kSpecialistmag.com 35

http://www.401kSpecialistmag.com

401(k) Specialist Issue 1 - 2015

Table of Contents for the Digital Edition of 401(k) Specialist Issue 1 - 2015