8/16/2022

Revitalizing the Concept of Fiduciary

Fiduciaries who foster three skills, as shown in the balanced continuum below, will be far more effective working with plan sponsors and investment committees, particularly when they not only demonstrate but share the more transformational aspects of this approach.

The three key interrelated attributes of an effective fiduciary are:

Leadership - the ability to inspire and engage others
Stewardship - the discipline and passion to protect the long-term interests of those they serve
Governance - the ability to prudently manage the details of the decision-making process

Transformational, Not Transactional Approach

As we look back on the history of fiduciary training, it has primarily taken a transactional approach. This is precisely why fiduciary training has failed the financial services industry and its clients. Fiduciary training must instead focus on the transformational. Utilizing and promoting an approach that encompasses leadership, stewardship and governance provides a framework that advisors, plan sponsors or investment committees can use daily in any decision-making process. This framework can be used to improve the quality of decision-making outcomes as well as the level of trust stakeholders place on potential outcomes.

Third Leg of the Behavioral Sciences Stool

Behavioral governance, the research-based foundation of this transformational approach, focuses on how behavior impacts the quality of outcomes. This is considered the “third leg” of the behavioral sciences stool, with the first being behavioral economics and the second behavioral finance. Where behavioral finance is limited to financial decisions, behavioral governance has a greater application with a framework that can be used in any industry.

Six Key Neurological Markers

This redefinition of what it means to be an effective fiduciary is firmly rooted in neuro-fiduciary research that revealed six key neurological markers make up exemplary leaders and exemplary fiduciaries. These markers include situational awareness, social astuteness, self-complexity, vision-inspiration, executive control and procedural justice.

There is technology that can scan the brain to reveal the prevalence of these six markers, and training can be developed to enhance an individual’s capacity in any of these areas. As the capacity for this research increases and the costs for implementing it decline, neurological readings may be used to help create a more customized fiduciary training process that focuses on weaker areas requiring more attention.

Five Step Decision-Making Process

This behavioral governance and neuro-fiduciary research has culminated in the creation of a five-step decision-making process that can be used to run any project or business and incorporates the following considerations:

Step 1 - Engage
- Define roles and responsibilities
- State goals and objectives

Step 2 - Explore
- Identify risks and assets
- Identify time horizons and expected outcomes

Step 3 - Envision
- Define the strategy
- Communicate the strategy

Step 4 - Execute
- Implement the strategy
- Formalize financial controls and procedures

Step 5 - Examine
- Monitor the strategy
- Scrutinize for conflicts and self-dealing

Resources

For more information about fiduciaries, contact us.

This article is based off information shared by Alliance Benefits Group (ABG) from an interview with Don Trone, the CEO and co-founder of the behavioral governance and neuro-fiduciary firm 3ethos.

Sentinel Benefits & Financial Group is a member organization of ABG, a national coalition of independent advisors and recordkeepers. Participating in this coalition allows its members to share in broader service offerings, thought leadership and subscription services, while maintaining complete independence and autonomy. Sentinel has no affiliation with 3ethos.

Neurological capacity is based on peer-reviewed research by 3ethos Co-founder, Dr. Sean Hannah, and research collaborators, Dr. David Waldman, Dr. Pierre Balthazard, Dr. Robert Thatcher, and others.