Merely Fiduciary By: Donald TroneGFS®

I’d like to propose the following exercise: Consider the following five words which we often associate with a fiduciary standard of care: Stewardship, Loyalty, Leadership, Governance and Trust.

Like the steps to a building, how would you arrange these words in ascending order? Which word would you put at the base, the top, and in between? What is the hierarchy of these five terms?


Not an easy task, is it? 

Before I give you my answer to the hierarchy, a little background: I credit the origins of this article to John Taft. John is the great grandson of President William Howard Taft (27th President) and author of the book, Stewardship – a must read, by the way. John and I have had a number of intellectual discussions about leadership and stewardship, specifically how the terms impact our understanding of a fiduciary standard of care. 

It was during one of these discussions that John talked about the “merely fiduciary” standard of care. The first time I heard him make the reference I remember chuckling – it was like someone saying that Peyton Manning is merely a quarterback. However, after consideration I began to see his point. The role of regulators is to define the minimum standard of care a trustee or plan sponsor must meet in order to manage a qualified retirement plan. It is not the role of regulators to define the gold-standard, merely what is acceptable. 

To begin, let me offer my definition for each of the five terms:

Stewardship is the passion and discipline to protect the long-term interests of others – it is what you are willing to go to the mat for. My favorite quote to illustrate this point is from Ken Melrose:

What does the organization, my stakeholders, need me to be today: a coach, a teacher, a decision-maker, a supporter, a listener, a pilgrim, a servant, someone who makes waves? 

Loyalty is to be faithful and steadfast to principles and commitments. 

Leadership is the ability to inspire and the capacity to serve, others. I credit my coach, Lance Secretan, with introducing me to the concept that leadership is the ability to inspire others. Lance talks about the importance of understanding the differences between inspiration and motivation. Inspiration is a positive source of energy; motivation is almost always negative. This is certainly true when we talk about a fiduciary standard of care – it is negative motivation which is laced with responsibility, liability and risk.

Governance is communicating and exercising your policies and procedures – what one must do be in compliance. I define Governance as:
Doing the right thing, with the right people; 

At the right time, at the right place; 
With the right resources, with the right processes; 
For the right intentions, and for the right reasons. 

Trust is defined as the alignment of principles with policies and procedures which, in turn, nurtures reliability and builds confidence. Stephen M.R. Covey, the author of The Speed of Trust and the son of Stephen R. Covey who is credited with writing 7 Habits of Highly Effective People, defines trust as a new currency:
The ability to establish, grow, extend, and restore trust with all stakeholders - customers, business partners, investors, and coworkers - is the key leadership competency of the new global economy.

With each term now defined, how would you complete the hierarchy? This is my answer:

... if we define fiduciary as the alignment of Governance with Trust, then Stewardship, Loyalty and Leadership actually define a higher professional standard of care. ”

It starts with good Governance; with your ability to clearly communicate your procedural prudence – the details of your decision-making process. 

Trust is the next step which will likely be out of sequence for many of you. You might actually have put Trust at the top of the hierarchy. After all, isn’t our primary objective to be the trusted plan sponsor? True, but what you’ll discover is that the remaining terms all build on Trust. If there is no Trust, there can be no sense of Stewardship, Loyalty or Leadership. Think of Trust as the cornerstone – remove the stone and the rest of the structure will fail.

Stewardship is on the next step. To be a good steward, you must be trusted. No one is going to believe that you are passionate about protecting their long-term interests if they don’t trust you. 

Loyalty follows Stewardship – it’s demonstrating that you are being faithful and steadfast to your stewardship principles. Again, if people don’t trust you, they will not be loyal to you.

Finally, at the top, is Leadership. To have a successful plan, to produce positive retirement outcomes, plan participants must view you as a leader. 
So where does a fiduciary standard fall within this hierarchy? Fiduciary is the alignment of Governance with Trust. A fiduciary’s procedural prudence is defined by Governance, and the principle of the “best interests of the participant” forms the basis for Trust.

Note that if we define fiduciary as the alignment of Governance with Trust, then Stewardship, Loyalty and Leadership actually define a higher professional standard of care. Remember one of my opening comments: It is not the function of regulators to define the gold standard; their function is to define the minimum standard one has to meet in order to maintain the qualifications of a retirement plan. 

Through the eyes of your participants, you should not want to be viewed merely as a fiduciary; you should want to be viewed as a leader.

Donald B. Trone

Donald B. Trone, GFS™ is the president of the Leadership Center for Investment Stewards, and is the founder and CEO/Chief Ethos Officer of 3ethos. He is the former Director of the Institute for Leadership at the U.S. Coast Guard Academy; founder of the Foundation for Fiduciary Studies; and, principal...

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