T HE I NVESTMENT A DVISOR’S E THOS … defining the decision-making and leadership dimensions for...

THE INVESTMENT ADVISOR’S ETHOS

… defining the decision-making and leadership dimensions for prudent investment management

Donald B Trone

President, Foundation for Fiduciary Studies

Director, U.S. Coast Guard Academy Institute for Leadership


Through the eyes of your clients, you

have to be viewed as both an effective

manager and leader in order to gain

their trust and confidence.

Copyright © 2008. Fiduciary Ethos

Ethos (ē-thäs) the distinguishing character, sentiment, moral nature, or guiding beliefs of a person, group, or institution

Merriam-Webster Dictionary


INVESTMENT ADVISORY ROLES



Note: Often, it is difficult to identify a bright line that marks the demarcation between one role and another.

Ultimately, status is determined in the courts by facts and circumstances.



The imperative is to define the dimensions of a decision-making process that is applicable to any advisory role –

- and also to define the leadership dimensions of the investment advisor’s unique role.


ETHOS DECISION-MAKING STEPS


Analyze

Strategize

Formalize

Implement

Monitor

(Acrostic) All Sinners Fall Into Madness


Judgment

Innovation

DecisivenessCourage

Integrity

ETHOS LEADERSHIP THEORY


Judgment

Innovation

Decisiveness

Courage

Integrity

(Acrostic) Judges In Detroit Can’t Indict


ETHOS LEADERSHIP THEORY

Client focus:

ServantLeadership

TransactionalLeadership

TransformationalLeadership

Needs of the client

Capacity and willingness of the

client

Legislation/Regulations

IndustryBest Practices

SituationalLeadership


Greenleaf, CoveyBlanchard (1970)

Hersey, Blanchard (late 1960s )

Weber (1947) Burns (1978)

ADM James M Loy Donald T Phillips

LEADERSHIP DIMENSIONS

“The public position of the Indian has always been

entirely dependent upon our private virtue. We are

never permitted to forget that we do not live for

ourselves alone, but also for our tribe and clan. Every

child, from the first days of learning, is a public

servant in training.” Ohiyesa (Charles Eastman) Santee

INDIGENOUS WISDOM


Fiduciary Affirmations

With “Stuart Smalley"

I'm Good Enough,

I'm Smart Enough,

and Doggone It, People Like Fiduciaries! Original Source: Al Franken, Saturday Night Live


U.S. FIDUCIARY LEGISLATION

18

1. Prepare written investment policies in accordance with standards, laws, and trust provisions

2. Diversify assets to specific risk/return profile

3. Use “prudent experts” and document due diligence

4. Control and account for investment expenses

5. Monitor the activities of “prudent experts”

6. Avoid conflicts of interest and prohibited transactions

GLOBAL FIDUCIARY PRACTICES


There is a complete set of

legal memoranda which

provide the fiduciary

substantiation for all 18

decision-making dimensions:

info.fiduciaryethos.com


GLOBAL FIDUCIARY PRACTICES

Step 1: Analyze 1.1: State covenants, goals, and objectives (“objectives”) 1.2: Define roles and responsibilities of decision-makers 1.3: Brief decision makers of applicable laws, regulations, and policy statements

Judgment

OpportunityCommitmentManagement

Capacity to CareVision and Goals

Inspiration/Persuasion


“People eyeing you as a potential leader tend to ask

three questions:

1. Are you committed?

2. Do you care about me?

3. Can I trust you?”

Coach Lou Holtz

Step 2: Strategize (“RATE”) 2.1: Identify sources and levels of Risk 2.2: Identify Assets 2.3: Identify Time Horizons 2.4: Identify Expected Outcomes (“performance”)

Innovation

Creativity

Risk-takingAbility to Embrace Change

Curiosity and Continual Learning


25

People want to be on a team. They want to

be part of something bigger than

themselves. They want to be in a situation

where they feel that they are doing

something for the greater good.

“Coach K”

Step 3: Formalize

3.1: Define the strategy that is consistent with RATE 3.2: Ensure the strategy is consistent with implementation and monitoring constraints 3.3: Formalize the strategy in a detailed written policy statement

Judgment

Relationships/Alliances

Empowerment/DelegationGood Communication Skills


“As a leader, you have to not only do the right

thing, but be perceived to be doing the right thing.

A consequence of seeking a leadership position is

being put under intense public scrutiny, being held

to high standards, and enhancing a reputation that

is constantly under threat.“

Jeffrey Sonnenfeld and Andrew Ward, Firing Back

Step 4: Implement 4.1: Define the process for selecting experts to implement the strategy 4.2: Define the process for selecting tools, techniques, and Vehicles to implement the strategy 4.3: Ensure that service agreements and contracts do not contain provisions that conflict with objectives 4.4: Define the process to compare, control, and account for fees and expenses (“costs”)

Courage

Diversity Expertise

Hard WorkHigh Energy

Self-ConfidenceDrive to Achieve Being in the Field


“We shall have to create leaders who embody

virtues we can respect, who have moral and ethical

principles we can applaud with an enthusiasm that

enables us to rally support for them based on

confidence and trust. We will have to demand high

standards and give consistent, loyal support to

those who merit it.”

Martin Luther King, Jr.

Step 5: Monitor 5.1: Prepare periodic reports which compare performance with objectives 5.2: Prepare periodic reports which analyze costs with performance and objectives 5.3: Conduct periodic examinations for conflicts-of-interests and self-dealing 5.4: Prepare periodic qualitative reviews of decision-makers

Integrity

TrustEthics

RespectHonesty

Team WorkPerseverance

Coaching/MentoringUnderstanding Human Nature


“In looking for people to hire, you look for

three qualities: integrity, intelligence, and

energy. And if they don't have the first, the

other two will kill you.”

Warren Buffet

ANSI, ISO, SAS 70, and Six Sigma share certain attributes:

1. Determining whether there is conformance to a defined standard (to the dimensions);

2. Evaluating the capability of management to ensure compliance with statutory, regulatory and contractual requirements;

3. Evaluating the effectiveness of management in meeting its objectives; and

4. Identifying areas for potential improvement.

ASSESSMENT OF DIMENSIONS


Source: ISO 19011

“Every night I try myself by court martial to see if I

have done anything effective during the day. I

don’t mean just pawing the ground, anyone can go

through the motions, but something really

effective.”

Winston Churchill

1. Provides a checklist of roles and responsibilities

2. Serves as a practicum to frame a long-term investment strategy, and to assess current status

3. Helps to uncover procedural shortfalls and omissions

4. Promotes investment excellence and improves the quality of services provided by investment advisors

BENEFITS OF DEFINED DIMENSIONS


“Standardization is one of the reasons why we were so successful during Katrina. We had crews come in from all of the country, but it didn’t matter; we had all been trained the same way.” (minute 51:14)

When you were born,

you cried and the world rejoiced.

Live your life so that when you die,

the world cries and you rejoice.

White Elk

Donald B. Trone, AIFA®

Don Trone is the Director of the U.S. Coast Guard Academy Institute for Leadership. He also serves concurrently as the President of the Foundation for Fiduciary Studies, and as the CEO of Fiduciary Ethos, which provides training and publications on the leadership and fiduciary dimensions of investment decision makers.

In 2008 and again in 2007 Don was named as one of the fifty most influential people in the retirement industry, and in a separate survey was named one of the eight most influential people in the financial planning profession. In 2006 and 2005, Don was selected for the prestigious IA25, the listing of the twenty-five most influential people in the investment advisory industry. In 2003, Don was appointed by the U.S. Secretary of Labor to represent the investment counseling industry on the ERISA Advisory Council.

Don is the author of The Management of American Indian Investment Decisions; co-author of two industry bestsellers, Procedural Prudence and The Management of Investment Decisions (McGraw-Hill Publishing); and, lead the development of the industry’s fiduciary handbook series, Prudent Investment Practices.

Don graduated as president of his class from the United States Coast Guard Academy, and with honors from the US Naval Flight Training Program in Pensacola, Fl. He served on active duty for ten years , including six years as a long-range search and rescue helicopter pilot. He is the 1997 recipient of the U.S. Coast Guard Academy Alumni Medal of Achievement for his distinguished military and business career. Don received his Master’s degree in Financial Services from the American College, and has completed post-graduate studies at Pittsburgh Theological Seminary and Trinity Episcopal Seminary.

43 Mohegan AveNew London, CT 06320-8111(412) [email protected]

169 Long Wharf Rd.Mystic, CT 06355(412) [email protected]

CONTACT INFORMATION

Donald B Trone

President Foundation for Fiduciary Studies

Director U.S. Coast Guard Academy Institute for Leadership

[email protected]

T HE I NVESTMENT A DVISOR’S E THOS … defining the decision-making and leadership dimensions for...

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