Ignoring risk is folly, especially when the downside could be complete ruin for a business or investment portfolio. That’s why it’s essential for risk managers to persuade others to pay close attention to things that go bump in the night and then figure out a way to prevent loss, to the extent possible. Unfortunately, risk management is often seen as dull, overly complex or unlikely to be a path to career advancement. I know this firsthand. Having worked in various corporate settings, risk managers have few fans. They are the people who say “no” or ask others to gather data and documents instead of doing the kind of glamorous work that adds to one’s bottom line. Risk management is a thankless task until it isn’t. When the stars align, no one cares about managing uncertainty. It’s the “oops” moments that remind the world why taming risk before disaster occurs is a big deal.

For frustrated risk managers, there is hope, especially if you are willing to tweak your communication skills in pursuit of a worthy cause. Don’t take my word. Check out what Scott Adams Says.

According to the creator of the successful Dilbert cartoon strip and author of bestselling books such as How to Fail at Almost Everything and Still Win Big, simplicity is a core element of convincing others. In his recent video about doing laundry, I laughed out loud when he explained how he avoids the risk of discoloration. Buy clothes that don’t have to be washed separately. It’s such a basic and obvious solution that one wonders why it’s not more commonplace. (As I write this post, I’m wearing yoga pants and a sweatshirt with spots from something else I mistakenly cleaned in the same load.)

In one of Adam’s many insightful essays, the reader learns that another persuasion technique involves the use of visuals, especially those that appeal to people’s emotions. In investment land, think about the photos of senior citizens who lost retirement money in 2008 juxtaposed next to images of wealthy bankers with cigars and fancy cars. Regardless of case-specific facts, such powerful images scream “good” versus “bad.” It’s no surprise that financial service ads tend to focus on comforting images whereas political commercials show pictures likely to rile voters.

Yet another tool in the persuasion toolbox is what Adams describes as the “high ground maneuver” or the art of advancing an argument to a level that garners widespread agreement, thereby trivializing any other position. For fiduciaries being sued over their management of other people’s money, they might silence critics by demonstrating (if they can) how their risk management actions broadly advantage beneficiaries such as retirees or endowment recipients. The goal would be convincing others to overlook short-term strategy misdirection in pursuit of a lofty and prudent long-term focus.

When it comes to risk management, it’s not just about numbers. Rallying others to do their part is critical. One has to be an effective cheerleader to grapple with the unknown. I’m convinced that this persuasion “thing” has legs. That’s why I’ve just pre-ordered Win Bigly by Scott Adams for a dose of wisdom and a few chuckles.

Fiduciary education is an important topic at any time but seems to be garnering further attention in recent months. Rumor has it that questions about training are being asked of in-house fiduciaries during U.S. Department of Labor audits. According to “Developing a Fiduciary Training Program,” ERISA attorney Sheldon Smith explains that this federal regulator “views fiduciary training as a critical element of good governance.” I concur.

Hiring third party experts is one solution to closing a skills gap. Requiring in-house investment fiduciaries to demonstrate a minimum level of proficiency is another option. In either case, there is a real need for instruction about topics such as ERISA plan governance, risk measurement, fee assessment and service provider due diligence.

Fortunately, there is no shortage of organizations that offer retirement plan fiduciary training as part of a certification program or for continuing education purposes. To learn more about this knowledge-sharing alphabet soup, read “Sorting through Professional Credentials” by financial journalist Ed McCarthy (Wealth Management, September 27, 2017). I am quoted in this article as saying “… the value of any one designation will depend on other credentials one has, the kind of work they do, the kind of client base they serve, how well someone explains the value of that credential to his or her clients …”

In my case, credentials are aplenty. Besides a PhD and MBA in finance, an MA in economics and lots of financial industry experience, I successfully met requirements to become an Accredited Investment Fiduciary Analyst, Chartered Financial Analyst charterholder, certified Financial Risk Manager, Certified Fraud Examiner and Professional Plan Consultant. I adhere to continuing education mandates. While it’s difficult to know which designation, degree or type of industry position ranks highest on clients’ “must have” list, I am aware of an increased appreciation of programs that are rigorous in terms of content, candidate requirements and emphasis on high ethical standards.

McCarthy’s article correctly points out the role of continuing education. I’ve long held the opinion that point in time training is worthwhile but ongoing instruction is likewise needed. High integrity professionals who study hard to pass designation-related exams understand the advantages of lifetime learning. Many of their clients acknowledge the seriousness of advisors who stay abreast of new rules and regulations and strive for an A game on behalf of investors.

If you missed the Strafford continuing legal education webinar on September 12, click here to download the slides about ERISA investment committee governance. The ninety minutes flew by, with each speaker having lots to say. Attorney Emily Seymour Costin addressed ways for companies to minimize the risks of being party to an ERISA lawsuit or, if sued, how best to mount a defense. Insurance executive Rhonda Prussack talked about ERISA fiduciary liability coverage. I gave an economist’s perspective about conflicts of interest, delegating to a third party such as an investment consultant, facts and circumstances considered by a testifying expert and fiduciary training.

I also broached the topic of benchmarking fiduciary actions as vital to good governance, something that deserves significant attention. Certainly policies, procedures and protocols can vary across ERISA plans. However, the importance of assessing whether committee members are doing a good job is universal, regardless of plan design.

One way to grade job performance is to create a matrix of relevant attributes and compare actual deeds to expectations of what a prudent investment fiduciary would do in similar circumstances. Although overly simplistic, the image above illustrates the general notion of ranking decisions from great to bad or somewhere in between. For a specific engagement, a scorecard would be much larger because there are dozens of categories to examine.

My recommendation to anyone with ERISA fiduciary responsibilities is to engage outside counsel for a fiduciary assessment and then have the law firm bring an investment expert on board to address economics, risk management and industry norms. By self-assessing, with the help of knowledgeable and experienced third parties, investment committee members have a golden opportunity to improve weaknesses and recognize areas of strength. When there are multiple solutions to a given problem, something that is more the norm than not, brainstorming with meaningful metrics can be invaluable.

Despite the billions of dollars being allocated to financial technology or “Fin Tech,” some believe automation will never trump personal interactions. As Carla Dearing, CEO of financial wellness company SUM180, puts it “… money is emotional and there are always intangibles to consider in deciding what to do next, which cannot be captured by robots …” (Read “Why Robo-Advisors Will Not Replace Human Financial Advisors,” The Street, February 28, 2017).

Last month, industry pundit Michael Kitces offered interesting insights in his “Why Broker-Dealers Launching Robo-Advisors Are Missing The #FinTech Point” article. He acknowledges the growth in automation but suggests it won’t be a cure-all to attracting Millennial heirs who expect to inherit their parents’ wealth. What makes more sense is to exploit the “tremendous operational efficiencies” for purposes of “onboarding clients and efficiently managing (model) portfolios” while allocating ample resources to “marketing and business development.”

Whatever your view about the next big thing involving a mobile interface or data analytics, a critical question remains. Will you or your financial advisor soon be made redundant by some version of R2D2 or C-3PO?

Drum roll please! If research by Oxford University academics accurately foretells the future, financial advisors can breathe a sigh of relief – sort of. In their 2013 paper, “The Future of Employment,” Carl Benedikt Frey and Michael A. Osborne quantify low probabilities of replacement for securities, commodities and financial services sales agents. Financial managers, financial examiners, financial analysts and financial specialists similarly fall into the “low probability” category. Personal financial advisors fall into the “medium probability” bucket with an estimated fifty-eight percent chance of being replaced by a computer. Of course, those who specialize in complex areas such as estate planning are logically more a fixture than any digital counterpart.

Like any career, the friction between technological progress and added-value by a particular individual is real. One solution is meaningful continuing education. Another approach is for investment professionals to actively empower their clients by providing them with solutions to specific problems. Consultative selling can be a time-intensive process and not one that is always supported by an organization’s business model. Some investment advisors or asset managers are rewarded for short-term and not longer-term performance. These decision points are seldom simple to parse but nevertheless vital to consider at both the micro and macro levels – for both service providers and their clients.

Attracting clients is hard work in the best of times. Increased competition adds to the challenge. One way to stand out is to make clear what product (or service) you offer and why an investor should consider your firm. In my experience, providing information in a straightforward manner is paramount. It’s easy for a saver to be overwhelmed by a seemingly endless assortment of products with different names, especially when many are already struggling to understand basic investment concepts. The American College of Financial Services gives Americans a grade of “F” in terms of understanding how to best prepare for retirement. In my experience, plenty of institutional fiduciaries likewise grapple with how to meaningfully compare two or more funds with overly complex structures and strange sounding or confusing names.

The importance of brand clarity hit home a few weeks ago when I excitedly showed my husband my toes, post-pedicure, decked out in a new color called Cranberry Kiss. He drily replied: “They look red to me.” A smart man with a PhD in finance, he does not follow beauty trends. He’s not alone. Others might simply look at the overall color and ignore attributes such as brand name or bottle design of competing items such as Big Apple Red, Sophisticated or Forever Yummy.

Customer indifference is not new. I’ve talked to investors who throw up their hands in despair when presented with too many choices. One lady recently told me that she did not want the headache of having to vet multiple funds so she picked the one with the name that seemed to describe the underlying portfolio strategy. Consumer research supports the notion that a buyer can have “too many” choices. From a service provider’s perspective, having your product lumped together with others is not ideal. On the other hand, having a name that seems “exotic” or is not self-explanatory can likewise lead to lost sales.

Understanding how to name a product is vital for a fund company, bank or insurance firm. While it may be tempting to rely on performance numbers alone to build assets, smart marketers and sales professionals know the power of keeping things simple, having a memorable and obvious product name and doing whatever they can to differentiate their product as a “must have.”

According to the authors of “A Nurturing Campaign” (Financial Advisor Magazine, August 1, 2017), other investment industry professionals are key to securing leads for your business. Savvy advisors, consultants and money managers know the importance of cultivating relationships with peers, positioning one’s self as a competent technician and being ready to reciprocate as appropriate.

I agree that effective networking is the way to go. Besides the prospect of adding clients, investment professionals benefit when others are willing to candidly exchange information about ways to improve best practices and avoid mistakes.

Not everyone is a believer. It takes time and money to market your skill set to potential clients. Some posit that leaves little time for outreach to others, especially for those whose “to do” lists seem to aggressively expand each day. This kind of thinking is unfortunate. The world is a small place and today’s competitor could be a close ally later on.

To those who do seek referrals (and hopefully give them when you can), I applaud your initiative but would like to respectfully remind you that your request is only a beginning. Be clear with what you want, when you need an introduction and what you expect. Help others help you build your book of business by recognizing their busy schedules and any limitations they might have about being able to provide effusive praise. (Company policy or regulations could prohibit lengthy or detailed referrals.) By asking someone to do the heavy lifting you should be doing, you risk criticism for taking that individual for granted, coming off as impolite or turning a positive connection into one tainted with a hint of annoyance. I know this from firsthand experience.

Just last week, I received two separate requests for recommendations, both of which ended costing time and frustrating everyone involved. The first person asked me to write a recommendation letter and have it sent one day later. Ordinarily I would have said no because of the short turnaround but I like the high-integrity work this person does and his client focus. So I stayed late at work to write something, only to discover that the directions provided to me were incomplete. The net result was that I used up several hours of time and he could not meet the cutoff. Another individual gave me ample time to write a recommendation letter but told me, after I had already spent about ninety minutes drafting text and reviewing her service materials, that I should revise my letter to include passages of her numerous research papers. Of course I would have to take time to read them in depth as it had been awhile since I looked at them. We mutually agreed that she would ask another colleague – someone with the schedule flexibility to review her impressive portfolio of thought leadership items.

A few of my takeaways from these recent experiences are as follows:

  • It’s gratifying to be able to recommend high integrity, knowledgeable colleagues but important to set boundaries in terms of time and realistic expectations.
  • Arrange for a call to ask for a recommendation or referral. Email seems impersonal to me for this purpose and increases the likelihood that the referral source will waste time because instructions were unclear or incomplete or both.
  • During the call, catch someone up on what you’ve been doing and your professional value-add so everyone is clear on your achievements, business philosophy and goals. Let the recommending party ask you questions. Be specific about how the referral will be used and by whom.
  • Afterwards, send a handwritten note to acknowledge that person’s gift to you of their time, energy and belief in the positive way you handle clients.

Small courtesies can grow into large payoffs. It’s hard enough to stand out from the competition. Why not shine by demonstrating courtesy and respect for other people’s time?

Economist Dr. Susan Mangiero is pleased to announce that she will be speaking during an upcoming Strafford Live webinar on September 12, 2017 from 1:00 pm to 2:30 pm EST. The Continuing Legal Education (“CLE”) webinar is entitled “ERISA Plan Investment Committee Governance: Avoiding Breach of Fiduciary Duty Claims.”

She will be joined by a prominent ERISA attorney and a senior-level ERISA fiduciary liability insurance executive to discuss risk mitigation approaches that have the potential to help lower the likelihood of breach of fiduciary duty allegations. This program will also address effective litigation strategies, the importance of fiduciary liability insurance and the role of the economic expert in the event of litigation, arbitration, mediation and/or regulatory enforcement actions. Court cases including the recently adjudicated Tibble v. Edison matter will be discussed as part of the program.

Please join the distinguished faculty for what should be a relevant, timely and important conversation about suggested protocols and bad practices to avoid. For more information or to register, visit the Strafford website or call 1-800-926-7926, extension 10. Mention code ZDFCT to qualify for a fifty (50) percent discount. If you have questions you would like answered, please let Strafford know in advance or on the day of the live event.

While on vacation at Canyon Ranch in Tucson, I had an opportunity to take a workshop about joy. It’s a little word for such a big concept. Without that je ne sais quoi that puts a smile on one’s face and pep in each step, life can become a series of “must do” items instead of “let’s go” moments. That’s not an ideal outcome for individuals or their friends and families. Companies have a stake in the happiness game as well.

Motivated and satisfied employees can add to the bottom line through productivity gains. Employees on the other end of the spectrum can add to health care costs and reduced output due to excessive absences. According to the Global Wellness Institute website, “The world’s 3.2 billion workers are increasingly unwell.” This explains why companies around the globe spend upwards of $40 billion on wellness programs.

A few years ago, the Rand Institute carried out a large-scale survey of nearly 600,000 individuals who participated in wellness programs offered by seven companies. What they found may surprise some. While the lion’s share of wellness budgets was spent on improving lifestyle skills such as smoking cessation or losing weight, return on investment (“ROI”) was significantly higher for disease management efforts. The take away is that employers are not allocating monies wisely and need to modify accordingly.

If true that organizations should budget mostly on addressing existing illnesses or preventing new realizations, there could be a heightened demand for psychological or behavioral specialists. Those individuals who can afford to seek outside help will clamor to understand their malaise and emotional deficit, even when their bosses look askance.

In his Forbes opinion piece, Dan Pontefract discusses the importance of sharing a vision that excites and empowers. He cites surveys that demonstrate a C-suite awareness of the purpose-profit connection even when these same executives do little to activate their team around a shared vision. Instead of rewarding people for short-term bottom line advances, this author and researcher urges companies to ratchet up their efforts to do well by doing good. Whether the metric is excellent client service or operating with better ethics than a peer, his take is that managers should address more than the quarterly bottom line.

Illustration depicting a green roadsign with a optimistic concept. White background.

Most of us are disciplined enough to put together a financial plan or seek the help of an advisor. While true that retirement planning is important, the future should not give way to living life in the present. If you agree that every day is a gift, check out a new movie called The Hero.

Starring Sam Elliott, the recipe is straightforward. Take one aging actor who learns he has a serious illness. Add a younger love interest, a friend with a questionable work ethic, a caring ex-wife and a disappointed daughter. The result is a tale of redemption and a story about hope. The audience sees a man who is sympathetic because he wants a second chance to make a difference in the lives of those around him.

The Hero is a quiet film and likely too slow-paced for some. However, for those who crave solid character development and a ride towards grace, grab some popcorn and head to the theater without delay. Your reward is a chance to watch someone grow by recognizing his limitations and then being willing to ask for help. Lucky for him, he gets it aplenty.

There are flashbacks to the hero’s glory days as a celluloid cowboy, motivating viewers to distinguish good deeds from bad ones and understand that reality and make-believe can collide.  The scenes of this lanky “everyman” eating, sleeping and appreciating the nearby ocean are far from mundane. They reflect the “extraordinary ordinary” moments, something I describe in my book The Big Squeeze.

Sam Elliott refers to this gem of a movie by Brett Haley as a career brass ring in his June 2017 interview with Variety. I concur. The film is an enjoyable wake-up call for anyone in the doldrums. We root for the main character to live a rich and fulfilling life among friends, family and business associates for whatever time he has left. May we all be so lucky to renew and refresh, even when it seems like life hands us more lemons than we can squeeze into sweet lemonade.

 

new edition, 3D rendering, triple flags

During the last several months, I’ve been working with the terrific team at Lex Blog to consolidate my two business blogs – Pension Risk Matters® and Good Risk Governance Pays®. Now I’m back, raring to post commentaries and research updates about investment risk governance and fiduciary practices. I’ll plan to toss in a few essays about living the good life along the way.

Eleven years ago, I created Pension Risk Matters® with the objective of providing insights and information about investment governance and fiduciary best practices as relates to the management of retirement plans. A few years later, I created Good Risk Governance Pays® to address investment risk governance issues for the broader industry. Traffic to both websites has been robust and always much appreciated. However, in the interest of time and because of continued content overlap, I decided to consolidate the two websites.

Join me as Pension Risk Matters® rebrands as Investment Best Practices® and Good Risk Governance Pays® is phased out. Suggestions and guest posts are welcome. Simply email contact@fiduciaryleadership.com. For a complimentary subscription, visit www.investmentbestpractices.com and type your email address in the “Subscribe” box in the upper right hand corner of the home page. You can also add this blog to your RSS feed via www.investmentbestpractices.com/feed/.

Let’s keep the conversation going! There is a lot to discuss.