We May Be Doing ‘It’ Wrong

Don Trone

Consider this quote from management guru Ram Charan: “Seventy percent of strategic failures are due to poor execution of leadership. It’s rarely for lack of smarts or vision.” (Execution: The Discipline of Getting Things Done)

Can we draw parallels to the retirement industry? When you consider advisors or trustees who have failed to serve effectively as a fiduciary, what percentage of the time can the failure be attributed to one or more of these three causes?

  • Poor leadership (lacking the ability to inspire, engage and serve others)
  • Poor stewardship (lacking the passion and discipline to protect the long-term interests of others)
  • Poor governance (lacking the ability manage the details of a procedurally prudent process)

We’re just beginning to conduct formal surveys and research to help answer these questions. But we believe the research is going to reveal that fiduciaries fail far more often as a result of poor leadership and stewardship rather than poor governance.

If this construct is correct — that poor leadership and stewardship trumps poor governance — then we may be doing “it” wrong.

The “it” is our singular focus on fiduciary checklists and audits. It sounds like this:

Advisor: Do you have an IPS?
Plan Sponsor: Yep.
Advisor: Check.

Really? Maybe the IPS was copied from another plan sponsor and doesn’t actually reflect the decision-making process of the trustees. Maybe a trustee signed the IPS, but then put it in a file drawer where it has sat for the past four years.

The traditional fiduciary checklist and audit does not provide sufficient insights as to whether a retirement advisor or plan sponsor actually “gets” what it means to serve in a fiduciary capacity.

The traditional approach to evaluating a fiduciary is one-dimensional. We only focus on the fiduciary’s decision-making process — their governance. To conduct a more informed assessment, we need to look across three axes: the fiduciary’s governance, stewardship and leadership (see Fig. 1).

Fig. 1 Trone

We define this 3-D framework as behavioral governance — a new body of research that parallels behavioral finance. [Warren Cormier deserves the credit for pointing out the similarities of our work to behavioral finance.] The difference between the two is that behavioral governance examines the conduct of fiduciaries, officers, advisors and directors, while behavioral finance puts the lens on plan participants and individual investors.

The same 3-D framework also enables us to have a better understanding of how to build client trust and loyalty. Neuroscientists have determined that trust develops along the same three axes as behavioral governance. We first evaluate whether the person is competent and dependable (a good decision-maker). Then, if so, whether the person is benevolent, i.e., willing to act in our best interests (a good steward). And if so, whether the person aligns with our core values, beliefs and principles (a good leader).

The next step in our research is to develop a Myers-Briggs-type instrument to assess a fiduciary’s behavioral governance, including a 360⁰ version for assessing boards or committees. What do retirement advisors and trustees “get”? What are they missing?

The results will provide insights into building much better fiduciary training programs. The data collected also could provide valuable information on the attributes of a great fiduciary — of the behaviors that actually improve retirement outcomes.

So… it’s likely that we’re doing “it” wrong and there is a much better approach out there to improving retirement outcomes. We need to start thinking in terms of three dimensions, not just one. We need to deepen our understanding of how leadership and stewardship has a material impact on the quality of a fiduciary standard of care.

©2017, Ethos. Used with permission. This column first appeared in the Summer issue of NAPA Net the Magazine; to view it — and other commentary by Don Trone — in pdf form, click here.

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