The Consultant's Toolbox
Industry surveys reveal that the vast majority of plan sponsors and individual investors have significant shortfalls in their investment process as required under UPIA, ERISA and MPERS. This reinforces the need of an objective third-party consultant to provide a more disciplined framework for investment recommendations which is consistent with the regulatory mandates of UPIA, ERISA and MPERS. It isn't just individual investors and plan participants who are struggling with investment decisions. Investment literacy needs to start with plan sponsors and investment advisors who have a major role to play in helping investors make informed investment decisions. Even the best investor or participant education will fall short if the advisor or plan sponsor has done a poor job in structuring investment policy, investment strategy and the investment portfolio. By virtue of the Department of Labor not yet having framed the details of a prudent investment process for plan sponsors, it is extremely difficult for plan sponsors to evaluate the effectiveness of their investment decisions. Similarly, for individual investors, the SEC has not defined for investment advisors the practices that constitute a prudent investment process (the objective of the Boehner bill), thus individual investors who turn to investment advisors for assistance cannot differentiate between rogue brokers and competent investment advisors. The weight of the SEC and DOL has not been put behind an objective criteria for which the level of professional investment and administrative counsel could be gauged. Thus, we must go beyond the poorly defined "prudent man" criteria to define advice in the context of the prudent expert as specifically described by the regulatory mandate of UPIA, ERISA and MPERS. Therefore, best-in-class training would entail an indepth authoritative understanding of the "Prudent Investment Process" required by UPIA, ERISA and MPERS. By using the "Prudent Investment Process" as our guide for training, we institutionalize the best practices of prudent experts. This is, by definition, best-in-class training. The Center for Fiduciary Studies, affiliated with the University of Pittsburgh Katz Graduate School of Business and Stetson University, has created the first practice standards of care for financial advisors and fiduciaries that identifies 28 practices that define a prudent investment process as required under UPIA (individuals), ERISA (qualified plans) and MPERS (state and municipal employees). This is the authoritative basis of the six financial service investment process (asset/liability study, investment process, strategic asset allocation, manager search and selection, performance monitor, tactical asset allocation) through which a broad range of required investment and administrative values are addressed and managed. This is the authoritative basis of any Six Sigma training initiative upon which most professional development programs are based.
The best-in-class training in building a world-class investment management consulting practice involves several initiatives. In weighing the order of importance in training content on the professional development of the advisor, its direct impact on the investor and its impact on elevating the level of advice the industry provides, Senior Consultant, recommends that to develop the knowledge to provide high level, comprehensive, expert advice, the following education initiatives should be pursued, in the following sequence, based on their market impact and practical application.
The Center for Fiduciary Studies' Certified Fiduciary Audit Course
A 3½-day course to certify fiduciaries, accountants, attorneys, and senior consultants to perform fiduciary responsibility/liability audits evaluating the 28 practices cited by regulatory mandate that constitute a prudent investment process. This positions the financial advisor to speak authoritatively on comprehensive, expert advice, citing the appropriate regulatory authority requiring the six financial service (asset study, investment policy, strategic asset allocation, manager search and selection, performance monitor and tactical asset allocation) investment process necessary in order to add value. (See Center for Fiduciary Studies Proposes Practice Standards, SEC and DOL Very Receptive, Senior Consultant, December 2000-January 2001; and for more information, visit the Center's web site www.CFStudies.com.)
The Investment Management Consultant's Association's Certified Investment Management Analyst (CIMA) Course
A one-week course at Wharton School of Business at the University of Pennsylvania, which provides basic knowledge of the language, tools and processes of investment management consulting with emphasis on investment manager evaluation and portfolio construction. For more information, visit their web site (http://www.imca.org).
Association for Investment Management and Research's Chartered Financial Analyst (CFA) Course
A three-year, self-study course that requires one to pass three levels of examinations (CFA I, CFA II and CFA III) given once a year. Each CFA examination is six hours. The CFA is the definitive certification for financial analysis recognized worldwide as being of more value than an MBA for those who are interested in finance with broad-based application in investment management, investment banking, investment research and investment advisory services. There are 39,000 CFAs and 74,000 candidates enrolled in the CFA program. For more information, visit their web site (www.AIMR.com).
Certified Financial Planners Standards Board's Certified Financial Planner (CFP) Course
An 18-month program entailing 5-7 college courses and a 10-hour, 2-day examination providing best in class training for advising individual investors, particularly on estate taxation issues. There are 39,000 active CFPs. For more information, visit the following web sites: www.CFP-Board.org and www.FPAnet.org.