There are two operative words in developing a standard, particularly a fiduciary standard: "consensus" and "substantiation." The public and the industry want to see "consensus," whereas regulators and the courts are more concerned about "substantiation." A standards developer, such as the Foundation, needs to be able to demonstrate both; that there is a consensus across the industry for the standard, and that every dimension to the standard is substantiated by either legislation, regulations or case law–or in the absence of such substantiation, industry best practices.
A good illustration is the requirement under existing fiduciary legislation (ERISA, UPIA, UPMIFA and MPERS) that a fiduciary demonstrate their "procedural prudence"–the details of their decision-making process. Such a requirement raises three related questions:
1. What constitutes the scope and breadth of activities that constitute procedural prudence?
2. Where do generally-accepted investment theory and industry best practices converge to define procedural prudence?
3. Are there consistent references in legislation, regulations, regulatory opinion letters and bulletins and case law that substantiate a particular dimension of a procedurally prudent process?
The answers to these questions are best left to industry experts; not to regulators, and certainly not to legislators. It is for these reasons that the Foundation was founded in 2000: To provide a ways and means to bring together objective industry experts to mine the answers to these questions, and then to build industry consensus through speaking, teaching and writing.
