With the nation’s capital knee deep in fiscal policy wonkery, it seems a good time to remind lawmakers about their fiduciary duties to taxpayers. Asking that our money be allocated wisely and efficiently is simple enough, especially at a time when the U.S. Debt Clock just whisked by $20 trillion. (If you have a strong stomach, click here to see how quickly the IOU levels are growing at a federal, state and international level, respectively.)

In my little household, like so many others, we balance our checkbooks to the penny. We don’t overspend and we borrow what we can reasonably repay on time. I don’t accept that a bigger purse leads to better outcomes. What about doing more with less and improving efficiencies? How is leaving a legacy of crushing debt the right thing for our younger generations? These questions are just two of dozens that demand good answers, regardless of your political affiliation.

It’s hard to joke about excessive debt and a runaway spending machine. On the other hand, if humor adds impact, then my recent efforts writing quirky prose are worthwhile. Click to download a pdf version of “A Taxpayer’s Scream” by Dr. Susan Mangiero.

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.

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.

Last year, I celebrated a decade of posting investment governance insights to Pension Risk Matters. This year, I have two reasons to say "hooray." March 23 marks the eleventh year of posting analyses, research updates and essays about managing money, retirement planning and mitigating uncertainty. In addition, it is the debut of National Fiduciary Day. Sponsored by Fi360, the goal is to encourage individuals to be good stewards of other people’s money. 

Given our shared commitment to investment fiduciary best practices and the fact that I am certified by Fi360 as an Accredited Investment Fiduciary Analyst, I asked the organization’s top officers for their thoughts on this special day. They were kind enough to oblige.

Executive Chairman Blaine Aikin says "Happy Anniversary, Susan! Congratulations on having achieved 11 highly productive years of blogging. It’s only fitting that this comes on Fi360’s National Fiduciary Day. Keep up the great work and thank you for your valuable contributions to the profession!" Fi360 Director J. Richard Lynch adds "We have appreciated our long standing relationship with Susan as an AIFA designee and in particular, her contributions to the fiduciary discussion through her blog and as a past speaker at our annual conference."

There are lots of us who long ago recognized the importance of perturbing the conversation about investment governance. This includes the roughly 1.2 million visitors to Pension Risk Matters, many of whom have not been shy about offering their views. I am grateful to them all and look forward to a continued exchange of ideas.

The issue of excess has been on my mind lately, mostly focused on my fragrance collection but now expanding to the topic of investment risk management. More specifically, as I continue to lead workshops about retirement plan risk management for the Professional Risk Managers’ International Association ("PRMIA"), I am pondering whether too much of a so-called "good thing" makes sense. 

By way of background, friends and family know I am a perfume aficionado. Yes, the ubiquitous "free" gift with purchase is a plus but I do truly enjoy trying new scents. I’m not alone. According to a February 23, 2016 article on the Beauty Stat website, 2015 sales of "prestige beauty" products grew more than seven percent to $16 billion and "mass beauty" product sales climbed two percent to nearly $22 billion in the United States.

Colleagues know that I have spent several decades in the risk management industry with positions that include trading, compliance and expert testimony, depending on the year. I am the author of an entire book and dozens of articles about investment risk governance. I strongly believe in the importance of establishing an appropriate risk management protocol, following said policies and procedures and regularly reviewing whether risk management actions are effective or need to be tweaked. I likewise believe there are lots of retirement plans that should be doing much more when it comes to identifying, measuring, managing and monitoring relevant risks.

Coming back to this issue of "too much" risk management, the critical question is whether investment fiduciaries can be too cautious. Most reasonable people would likely say "yes." Regardless of plan design, if an investment portfolio is overly skewed to seemingly safe assets or funds of "safe" assets, expected return could be insufficient to meet long-term needs. A discussion about what constitutes "safe" assets is left for another day except to say that every investment has some risk. Even putting one’s money under the bed could be risky if the house burns down. Another consideration is the cost of hedging. There is no free lunch. All fees and expenses associated with risk management, including the cost of putting a good technology system in place, should be part of any risk-adjusted performance assessment.

Retirement plan fiduciaries and their advisors are well served by identifying primary goals, major obstacles and both short-term and long-term nightmares that would generate serious pain for participants. Said differently, risk management, like perfume, is a good thing unless it prevents someone from achieving important milestones. As for me, I just bought a new bottle of perfume but resisted buying the other two I wanted. This should help me with my goals of decluttering and save more money.

As a follow-up to my January 12, 2017 announcement about retirement plan risk management education with the Professional Risk Managers’ International Association ("PRMIA"), I am delighted to announce a co-presenter for the March 2, 2017 learning event. Distinguished economist Dr. Lee Heavner will join me to talk about hedging techniques, the valuation of derivatives and structured products and the monitoring of investment-related risk as part of "Use of Derivatives in Pension Plans." Click here to read Lee Heavner’s impressive bio as a managing principal and financial expert with Analysis Group, Inc. Dr. Heavner and Dr. Mangiero have worked on multiple investment disputes and are the authors of "Economic Analysis in Fiduciary Monitoring Disputes Following the Supreme Court’s ‘Tibble’ Ruling" (Bloomberg BNA Pension & Benefits Daily, June 24, 2015).

Session Two will convene from 10:00 am EST to 11:15 am EST live this Thursday. If you cannot make it in real time, the event can be downloaded for later viewing. It is the second event of four CPE-qualified events. Speakers will examine risk management for retirement plans from both a governance and economics perspective. Topics to be discussed include the following:

  • Current usage of derivatives by retirement plans for hedging purposes;
  • Financially engineered investment products and governance implications;
  • Fiduciary duties relating to monitoring risks and values of derivatives and structured products; and
  • Suggested elements of a Risk Management Policy Statement.

Join us for this talk about an important issue – risk management for retirement plans!

As a follow-up to my January 12, 2017 announcement about retirement plan risk management education with the Professional Risk Managers’ International Association ("PRMIA"), I am delighted to announce a co-presenter for the February 23, 2017 learning event. Distinguished attorney Meaghan VerGow will talk about ERISA litigation and fiduciary risk management as part of "Establishing Risk Management Protocols for Defined Benefit Plans and Defined Contribution Plans." Click here to read Meaghan VerGow’s impressive bio as law firm partner and ERISA expert with O’Melveny & Myers LLP.

Session One will convene from 10:00 am EST to 11:15 am EST live this Thursday. If you cannot make it in real time, the event can be downloaded for later viewing. It is the debut event of four CPE-qualified events. Speakers will examine risk management for retirement plans from both a governance and economics perspective. Topics to be discussed include the following:

  • Procedural prudence and the costs of ignoring fiduciary risk;
  • Risk management differences by type of retirement plan;
  • Industry norms and pitfalls to avoid;
  • Role of Chief Risk Officer, investment committee members and in-house staff; and
  • Suggested elements of a Risk Management Policy Statement.

Visit the PRMIA website to register for Session One and read about course content for Sessions Two through Four. Our exciting roster of co-speakers for these future events will be posted shortly on this blog at www.pensionriskmatters.com

I was recently informed by Fiduciary News editor Chris Carosa that my blog post entitled "Effective Retirement Plan Communications" (January 8, 2017) was selected "Blog of the Week" for the second week of January. Thank you to Chris and his loyal readers. I really appreciate the recognition. It’s always terrific to get feedback about what topics are of interest to financial industry professionals.

For those who are unaware, I created an investment compliance and risk management blog a few years ago called Good Risk Governance Pays®. Although I mostly provide insights that are unique to each website, from time to time I do repeat an entry if it makes sense. In the spirit of providing educational write-ups about topics that are important to all types of institutional investors, I invite readers of Pension Risk Matters® to check out "Trading Ahead of Investment Policies and Procedures" and to sign up for email notices when new items have been added to the Good Risk Governance Pays® blog. This February 1, 2017 entry addresses the advantages of having guidelines such as an Investment Policy Statement. Otherwise, it could be challenging to detect rogue trading.