Trone: Prepare for the DOL Fiduciary Rule by Thinking BIG

By ASPPA Net Staff • December 09, 2016 • 0 Comments
Still searching for the best way to prepare for the DOL’s new fiduciary duty rule? Industry insider Don Trone has a suggestion: Consider a behavioral governance framework.

“You can do better by adopting a behavioral governance framework that satisfies the DOL’s de minimis standards while at the same time providing you a framework for building a more inspiring and successful practice,” Trone says.

Behavioral governance is the newest branch of the behavioral finance tree, Trone explains. “It was Warren Cormier, one of the co-founders of RAND’s Behavioral Finance Forum, who pointed out that our research on leadership and stewardship behaviors seemed to parallel elements of behavioral finance,” he notes. The major difference: While behavioral finance is focused on the decision-making process of individual savers, behavioral governance is focused on individuals who have legal, financial, professional or moral liability for their decision-making process.

Specific to an advisory practice, says Trone, “Behavioral governance is focused on the behaviors that infuse, amplify and help predict the quality of outcomes associated with your fiduciary decision-making process. When giving a speech or conducting training, we use the catchier term, Behavioral & Inspirational Governance, or ‘BIG’ — as in, ‘Think BIG!’”

He offers a chart illustrating the concept that depicts the relationships between the five steps of a recommended governance process, and the 12 specific leadership and stewardship behaviors that infuse and amplify that process.

That five-step governance structure is slimmed down from the 27 fiduciary practices first published by the Foundation for Fiduciary Studies in 2003, notes Trone. “The Foundation’s practices were designed primarily for trustees and investment committees and would be very difficult to apply to individual retirement savers with account balances of less than $360,000,” Trone points out. “In contrast, the five-step framework makes it possible to apply a fiduciary standard to much smaller accounts.”

For an advisor to improve the quality of outcomes associated with the five-step process, Trone says, “There are certain behaviors that you need to exhibit. We could also say that to help reduce liability associated with your decision-making process, there are certain leadership and stewardship behaviors that you need to exhibit to a retirement investor.”

There are other collateral benefits associated with the BIG approach, Trone adds:

  • The framework is universal and can be applied to any industry sector and domain — corporate, not-for-profit, government and military. “Imagine sharing with your clients a framework for managing their assets, and then explaining that the same framework could be used by the client to manage a division, a department, a company, a board of directors or an investment committee,” he suggests.

  • The framework is simple and intuitive. “It does not include any legal or regulatory terms,” says Trone. “One mistake we have all made is to try to teach clients the arcane vocabulary associated with a fiduciary standard and portfolio management.”

  • It can help advisors inspire, engage and more effectively serve their clients. “Behavioral governance provides a point of inspiration, which is in stark contrast to the negativity associated with the new DOL rules,” he declares.

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