The Department of Labor's fiduciary rule has faced a barrage of industry condemnation since its unveiling last April. One of those giving a thumbs-down may, at first glance, seem a bit far afield: a former search and rescue helicopter pilot for the United State Coast Guard.
In fact, that critic, Don Trone, founder and CEO of the consulting firm 3ethos, is regarded as one of the most influential people on the topic in the retirement, financial planning and investment advisory worlds. And for good reason: He's devoted the last 28 years of his second professional career to developing fiduciary best practices.
Trone's views on the DOL rule — and what needs to replace it — got a full airing at a general session during the National Association of Insurance and Financial Advisors annual conference, held in Las Vegas Sept. 17-19. The view behind his critique — that the DOL rule is misguided — echoed testimony he delivered in August 2015 before the Department of Labor's Employee Benefits Securities Administration.
"These rules are going to make it easier for bad advisors to hide behind the complexity… and make it harder for honest advisors to provide their services," said Trone (pictured below). "The greatest harm is going to come to small retirement plans, retirement savers with small account balances, and small retirement advisory firms."
Punishing regulations
A fundamental flaw of the DOL rule, Trone said, is its imposition of punitive regulations intended to force compliance with a principle: the rule's best interest standard. Instead what's needed, he argued, are "fiduciary practices" to satisfy the principle.
These fiduciary practices, which existing legislation, regulations and case law have "substantiated," can be put into checklists, an exercise with which Trone has extensive experience. 3ethos' CEO has developed and expounded on such checklists in numerous books, speeches and training programs conducted for tens of thousands of advisors, trustees and investment committee members.
The to-dos of one worksheet Trone recapped at the NAIFA general session — identifying asset risks, time horizons and expected outcomes; defining and ensuring that a strategy is consistent with these variables; and (among other practices) conducting periodic examinations for conflicts and self-dealing — underpin three pillars of Trone's fiduciary philosophy: leadership, stewardship and governance. These concepts are fundamental to the Global Financial Steward (GFS) designation issued by the Leadership Center for Investment Stewards.
Cutting-edge research
The GFS is based on a new body of research Trone began developing in 2007 when he took an 18-month "sabbatical" — 20 years after his last operational mission for the Coast Guard — to head the newly established Institute for Leadership at the U.S. Coast Guard Academy, a leadership think tank.
Trone's pet project at the institution: To understand why the Coast Guard responded so successfully to Hurrincane Katrina (the organization rescued 24,500 people after the storm) whereas other first-responders struggled. The most recent product of this endeavor, "Leader Metrics: What key decision-makers need to know when serving in a critical leadership role," published in 2014, is, in Trone's telling, unique in scope.
"There are tens of thousands of books on leadership; nearly an equal number on governance, decision-making and project management; and, a handful on stewardship," said Trone at the NAIFA general session. "This is the first book to integrate the three subjects of leadership, stewardship and governance."
The successful application of the three disciplines — collectively dubbed behavioral and inspirational governance or BIG — will be crucial to "elite" insurance and financial advisors in the decade ahead because of the increasing "legal, financial, professional and moral liability" they will bear as fiduciaries for their clients.
Trone said BIG expands on behavioral finance — the study of the behaviors, economics and financial factors underpinning the decision-making of individual investors — by also factoring in the behaviors of those who oversee and manage their investments: advisors, trustees, directors, officers and senior managers.
