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Using cost cutting ideas to help reduce fiduciary concerns and responsibility

Wednesday, May 31, 2017   (0 Comments)
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Using cost cutting ideas to help reduce fiduciary concerns and responsibility
Foundations, 401k's. 403b's, and Pension Plans Listen Up


Recently much has been written and discussed about fiduciary responsibility. Who could possibly have missed all the anxiety about the labor department's proposed changes in who's covered by the fiduciary rules and regulations. Think about all the changes that were made and will later be made in portfolios and sales practices because of the proposed changes likely to appear in some form of regulation in the near future.

Failure to heed the rules will have a profound affect on excessive fees. We know that the beginning of excessive fees started with the rash of 401k lawsuits, now look, the 403b's make us wonder who’s next to suffer for not following the New Prudent Man Rule. Could it be mutual funds? Fund companies now have problems with various options offered under each different fund. Even Vanguard funds are being sued (?) over possible tax liability brought about by trying to have the lowest possible sales cost.

Boards and investment committees, whether they are foundations, Trusts, 401k's, 403b's, pension plans, etc. are trying to find ways to reduce fiduciary responsibility, but you can hardly find anything written about how to reduce investment cost at the same time. Is there a hidden cost reduction possible?  You bet!

Knowledge and Experience

Many board and investment committee members may lack the knowledge and experience to create the desired portfolios, so investment advisors are hired to do this for the institution.  Here comes the additional cost, besides the cost in the portfolio.  Then someone has the responsibility for monitoring the selection as well as the performance of the portfolio.  How can this be delegated?  Is it possible to delegate this cost, selection, monitoring process and at the same time reduce fiduciary responsibility?  You bet!  Yes!

Discretionary "Free Market Fiduciary Program"

Let's question how to reduce fiduciary liability, increase liability protection, as well as reduce management and portfolio cost. Can you accept this as a challenge? You by now, certainly must be saying this writer has lost it all. No, not yet! You must read on.

If we can't do it properly, let's explore delegation as a challenge. Research will lead you to the "discretionary investment manager". The investment manager follows the "Modern Portfolio Theory" created by the three Nobel Prize winner's research done in the 1950's, but only winning the prize in "economics" in 1990. A computer program to crunch all the equity numbers was not available until the middle 1980's. Bingo, the prize was won. In 1991, a "Free Market Fiduciary Program" was created and now has a 25-year history of reducing fiduciary liability, increasing fiduciary protection, and reducing management and portfolio cost.

What rules does this discretionary investment manager follow? The Modern Portfolio Theory as adopted by ERISA Rules of 1974 and its rules published in 1979. This rule can be found on page 66 of The Trust Law Book "Reinstatement of the Law Third". The New Prudent Man Rule is a must-follow, which was changed by recent law.

Portfolio Equities

Successful management of the discretionary portfolio has been to include most all asset classes of equities in many foreign countries. The portfolio is rebalanced quarterly which brings the portfolio back to the percentage owned in each asset class. Note here, this is exactly where selling high and buying low is accomplished. At this point in this article, note that this writer has been and still is the financial advisor for a foundation since May 2000. This foundation has been able to give away approximately 121% of the original seed money, has approximately 118% seed money remaining, has not had a fundraiser, has not had to make a decision or removed or added an equity to the portfolio in its 17 years of operation. Can you wonder how much management cost they have saved and been able to increase the giving by the savings, as well as being able to use institutional funds that get the market rates of return?


Experience shows portfolio management professionals are vitally concerned about fiduciary liability when managing portfolios, selecting portfolios, monitoring portfolios, etc. Through a "Free Market Fiduciary Program", it can offer the ability to transfer this potential fiduciary liability to a "discretionary investment manager". Thus, reducing fiduciary liability, increasing liability protection, as you work at reducing your management and portfolio cost.

James (Jim) R. Hollon
Foundation Advisor
Investment Coach
205-492-7916   205-919-8661

McBryar Advisory Services

© Copyright 2017

NOTE: All investing involves risk, and particular investment outcomes are not guaranteed. This letter is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, or an offer to provide advisory or other services by James Hollon or McBryar Advisory Services, Inc. in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained herein should not be construed as financial or investment advice on any specific subject.

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