There are two operative words in developing a standard, particularly a fiduciary standard: “consensus” and “substantiation.” The public and the industry want to see “consensus,” whereas regulators and the courts are more concerned about “substantiation.” A standards developer, such as the Foundation, needs to be able to demonstrate both; that there is a consensus across the industry for the standard, and that every dimension to the standard is substantiated by either legislation, regulations or case law–or in the absence of such substantiation, industry best practices.
A good illustration is the requirement under existing fiduciary legislation (ERISA, UPIA, UPMIFA and MPERS) that a fiduciary demonstrate their “procedural prudence”–the details of their decision-making process. Such a requirement raises three related questions:
1. What constitutes the scope and breadth of activities that constitute procedural prudence?
2. Where do generally-accepted investment theory and industry best practices converge to define procedural prudence?