This is no gray-suited legal drone.
In fact, the most powerful weapon Mr. Trone has is a single word: Fiduciary. The founder of the Institute for Fiduciary Studies in Pittsburgh, he has built an institution that is now coming of age, propelled by the disastrous collapse of the Enron 401(k) plan and the more recent United Airlines bankruptcy court ruling calling for an "independent fiduciary" because it was clear that corporate management was not capable of acting in the best interests of United Airlines employees.
Still another propellant is the growing number of lawsuits aimed at 401(k) plan sponsors, claiming they have not acted in the best interests of plan participants.
While most of us have simply mourned our 401(k) balances, wished we could change our 401(k) plan choices, or simply felt helpless, Mr. Trone has been working to bring new life and renewed power to the word fiduciary.
In case you don't know what a fiduciary is, it is the person or persons entrusted with the responsibility of making careful decisions in "the best interest" of a beneficiary. In 401(k) plans the fiduciary is corporate management. It is also anyone who provides plan services. The "beneficiary" is the plan participants--- the employees.
"There are about 5 million men and women out there who have the legal responsibility for managing about 80 percent of the nation's liquid wealth," Mr. Trone said in a recent interview.
"Ninety percent of them don't know they have this responsibility. They don't know they have an impact on the fiscal health of the country," he said.
The figure, he points out, is the broadest possible measure. It includes named trustees for qualified plans, every endowment and foundation in the country, personal trusts, public pension plans, and every adviser providing comprehensive and continuous financial advice.
"Our regulatory structure is based on a law (the Investment Advisor Act of 1940) passed 65 years ago and the world has changed," he said.
When I asked for an example, he observed that there was a difference between the duty of a fiduciary--- the best interest of the client--- and the "standard of care" that governed the behavior of the brokerage industry. While a registered investment adviser is required to put the client's best interest first, the standard for brokers is mere "suitability."
What's the difference?
Everything. A broker can choose a "suitable" investment while racking up huge fees for his employer because the broker or sales agent is not duty bound to put the client's best interests first. A fiduciary must consider everything, including the burden of fees on the beneficiaries' long term welfare.
How does Mr. Trone put this into action? I asked.
"One thing we do is train people. We can't make trustees experts in two and a half days but we can teach them to be alert to potentially bad situations. A lot of the training is really focused on improving the smelling capability of the advisor," he said. In fact, I met Mr. Trone when he was giving a seminar in Santa Fe, N.M., one of several locations around the country where those who attend can become accredited investment fiduciaries.
The real action tools, however, can be found on his website under "Fiduciary Analytics." There, mutual funds are tested and scored by a fiduciary standard. The scores range from "0" to "100" where a score of zero represents a fund that raises no fiduciary issues. Funds that have scores up to 25 are considered to have passed or to be appropriate for advisors charged with fiduciary responsibility. Funds with scores over 25 are to be watched or avoided.
You can get a broad measure of how your mutual fund company (such as the one used in your 401(k) plan) measures up by downloading the quarterly report on fund companies at www.fi360.com. Vanguard, T. Rowe Price, Barclays, American Funds, Dimensional Investment Group, and American Century Investments, for instance, all scored in the top 25 percent of fund groups.
Fidelity, to my surprise, ranked toward the bottom of the second quartile along with Merrill Lynch, Janus, and MFS.
Most of the broker sponsored funds--- Morgan Stanley, UBS Global Asset Management, and Smith Barney, for instance--- ranked still lower, in the third quartile, while many relatively obscure fund companies filled the fourth quartile ranks.
This article contains the opinions of the author but not necessarily the opinions of AssetBuilder Inc. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational puposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
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