How would your firm fare if you opened up the firm’s process, practices and procedures to the scrutiny of an outside professional, trained to assess how well it conformed to the fi360’s “Global Fiduciary Standard of Excellence?” Would it be worthy of certification from the Centre for Fiduciary Excellence (CEFEX)?
“Letting someone come in to look at how you are running things is a very sensitive subject,” said Carlos Panksep, general manager, CEFEX. Panksep and Richard Carpenter, CEFEX Advisory Council member and president of USVI Pensions and Consulting, spoke with AdvisorOne during the 2011 fi360 Conference in San Antonio on May 5. That kind of “transparency is notable in this industry,” Panksep adds.
That is exactly what CEFEX-certified firms do, however—every year. First, an Accredited Investment Fiduciary Analyst (AIFA) (who cannot be associated with the candidate firm) works with that firm, going through the firm’s processes to see what more they must do to prepare for the assessment. The analyst looks at the firm, Panksep explained, to see if, "in process, they are they running a good business, with good fiduciary practices.”
Where they find gaps, the analyst will let the firm know that there is “opportunity for improvement; you can do better on this fiduciary practice,” Panksep said. Later the analyst looks again to see how those “opportunities” have been put into practice. According to Panksep, this “instills a culture of continuous improvement” at these firms. They “know the fiduciary will come out again to follow up. It’s an annual certification.”
Can a Newly Minted RIA Cut the Mustard?
For a “newly independent registered investment advisor (RIA),” said Panksep, the analyst would assess “compensation structure. Fee only, clearly out of the gate,” he said, gets a new firm started off “on the right foot.” They look at the firm’s service agreement” for 408(b)(2) compliance “if they serve a ERISA plan” he noted.
The firm also needs to “acquire the knowledge to be able to communicate” complex issues to clients. The “client needs to understand the complex concepts—not just that this is complicated and ‘I’ll take care of it for you,’” said Carpenter.
There are several classifications of firms that can achieve CEFEX Certification: Investment Steward, Investment Advisor or Fiduciary Advisor, Investment Manager, Retirement Plan Service Provider, Investment Support Services and Due Diligence.
Most firms don’t start the actual assessment process until they have fully prepared.
The Accredited Investment Fiduciary (AIF) and AIFA designations are achieved by completing of specialized programs at fi360 and the Center for Fiduciary Studies. This editor achieved the AIF designation in 2010.