Taking the right steps as investment fiduciaries.

• Author: Flores, Liz L.
• Position: Investment Practices

Responsibilities of investment fiduciaries have been brought to the forefront by recent misfeasance and malfeasance in the investment community. In response, The Center for Fiduciary Studies and the AICPA have published Practices & Standards for Investment Fiduciaries, which defines prudent standards and processes for investment fiduciaries--those who manage property for the benefit of others; exercise discretionary authority or control over assets; and act in a professional capacity of trust or render comprehensive and continuous investment advice.

There are more than five million people in the United States who fit this definition. Financial reviews or audits based on these practices will become more widespread for those charged with the management of endowment and foundation assets; ERISA retirement plans; public retirement plans; private family trusts; and high net-worth individuals.

CPAs and their clients can find themselves functioning as investment fiduciaries and not realize the duties and standards that they are being held to. Practices & Standards for Investment Fiduciaries provides that guidance to CPAs, personal financial specialists, certified financial planners--and their clients--by providing tools to evaluate and analyze the roles and responsibilities of the investment fiduciary. The publication also serves as a guide to determine whether there are deficiencies in an investment strategy or process.

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PRACTICE MAKES PERFECT

The publications recommends 27 practices that are applicable to all types of portfolios, regardless of intended use or size. The basis for most of these practices comes from the Employee Retirement Income Security Act, The Uniform Prudent Investor Act (UPIA) and The Uniform Management of Public Employee Retirement Systems Act (MPERS).

Investment fiduciaries can be held personally liable if their conduct is deemed imprudent, so it's important that they fulfill their responsibilities by consistently following a defined process. And keep in mind that liability is not determined by investment performance, but rather by whether or not prudent investment practices were followed.

The prudent investment process was developed by applying standards from the Practices & Standards for Investment Fiduciaries to a five-step investment management process: analyze the current position; diversify and allocate portfolio; formalize investment policy; implement investment policy; and monitor and...