The following article discusses the important duties and responsibilities of financial fiduciaries related to Employee benefits plans in the workplace.

The Significance of Being a Fiduciary

For the entire article, visit U.S. Department of Labor

Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries.

These responsibilities include:

Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them

Carrying out their duties prudently

Following the plan documents (unless inconsistent with ERISA)

Diversifying plan investments

Paying only reasonable plan expenses

The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.

Following the terms of the plan document is also an important responsibility. The document serves as the foundation for plan operations. Employers will want to be familiar with their plan document, especially when it is drawn up by a third-party service provider, and periodically review the document to make sure it remains current. For example, if a plan official named in the document changes, the plan document must be updated to reflect that change.

Diversification

Another key fiduciary duty – helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio. Once again, fiduciaries will want to document their evaluation and investment decision.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses who is considered a fiduciary and what some of the investment fiduciary responsibilities include.

Meeting Your Fiduciary Responsibility

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So you volunteered to serve on the board of your local charity or other organization and you consider yourself especially lucky to have secured a seat on the investment committee. Perhaps you initially had reservations about your new appointment - but if you have a keen interest in the financial world, some investments of your own, you’re a business person, you watch CNBC and you read the Wall Street Journal, you may feel that you’re qualified. However, while this may be a great way to attend investment committee meetings and receive the latest investment research from the charity’s advisor, this job shouldn’t be taken lightly.

Being a fiduciary comes with a certain level of responsibility. An investment fiduciary is any person who has the legal responsibility for managing somebody else’s money. What this really means is that you have been placed in a position of trust and there may be consequences for betrayal of that trust. In this article, we’ll discuss who is considered a fiduciary and what a fiduciary’s responsibilities entail.

Who is considered a fiduciary?
As a member of the investment committee, you may share some of the responsibility with the committee’s investment advisor. If your advisor is a Registered Investment Advisor, he or she does share fiduciary responsibility with the investment committee. A broker, on the other hand, may not. Some brokerage firms don’t want or allow their brokers to be fiduciaries. This uncertainty makes it important to ask the advisor. Ultimately, it is the advisor’s actions that determine whether he or she is a fiduciary. Giving continuous, comprehensive advice is considered acting in a fiduciary role, while simply selling products is not. 

Engaging an advisor who is willing to accept fiduciary responsibility is desirable because investment committee members reduce their liability by delegating some of their responsibilities to an expert. However, hiring an expert does not relieve the committee members of all of their duties. They still have an obligation to prudently select and monitor the activities of the expert; therefore, committee members still must understand what constitutes a fiduciary investment process.

A Fiduciary’s Responsibilities
A fiduciary’s main responsibility is to manage a prudent investment process. A prudent process is not as nebulous as it may sound. A fiduciary demonstrates prudence by the process through which investment decisions are managed. This means fiduciaries must have a basic outline for how they go about their responsibilities. In response to the need for guidance for fiduciaries, the nonprofit Foundation for Fiduciary Studies was established to define the following prudent investment practices:

Step 1: Organize
The process begins with fiduciaries educating themselves on the laws and rules that will apply to their situations. For example, fiduciaries of retirement plans need to understand that the Employees Retirement and Income Security Act (ERISA) is the primary legislation that governs their actions. Once fiduciaries identify their governing rules, they then need to define the roles and responsibilities of all parties involved in the process. If investment service providers are used, then any service agreements should be in writing.

Step 2: Formalize
Formalizing the investment process starts by creating the investment program’s goals and objectives. Fiduciaries should identify factors such as investment horizon, an acceptable level of risk and expected return. By identifying these factors, fiduciaries create the framework for evaluating investment options.

Fiduciaries then need to select appropriate asset classes that will enable them to create a diversified portfolio through some justifiable methodology. Most fiduciaries go about this by employing modern portfolio theory (MPT) because MPT is one of the most accepted methods for creating investment portfolios that target a desired risk/return profile.

Finally, the fiduciary should formalize these steps by creating an investment policy statement, which provides the necessary detail to implement a specific investment strategy. Now the fiduciary is ready to proceed with the implementation of the investment program as identified in the first two steps.

Step 3: Implement
The implementation phase is where specific investments or investment managers are selected to fulfill the requirements detailed in the investment policy statement. A due diligence process must be designed to evaluate potential investments. The due diligence process should identify criteria used to evaluate and filter through the pool of potential investment options. The implementation phase is usually performed with the assistance of an investment advisor because many fiduciaries lack the skill and/or resources to perform this step. When an advisor is used to assist in the implementation phase, fiduciaries and advisors must communicate to ensure that an agreed upon due diligence process is being used in the selection of investments or managers.

Step 4: Monitor
The final step can be the most time consuming and also the most neglected part of the process. Some fiduciaries do not sense the urgency for monitoring if they got the first three steps correct. Fiduciaries should not neglect any of their responsibilities, because they could be equally liable for negligence in each step.

In order to properly monitor the investment process, fiduciaries must periodically review reports that compare their investments’ performance against the appropriate index, peer group and whether the investment policy statement objectives are being met. Simply monitoring performance statistics is not enough. Fiduciaries must also monitor qualitative data, such as changes in the organizational structure of investment managers used in the portfolio. If the investment decision makers in an organization have left, or if their level of authority has changed, then investors must consider how this information may impact future performance. In addition to performance reviews, fiduciaries must review expenses incurred in the implementation of the process. Fiduciaries are not only responsible for how funds are invested, but they are also responsible for how funds are spent. Investment fees have a direct impact on performance and fiduciaries must ensure that fees paid for investment management are fair and reasonable. 

Conclusion
Through proper execution of the prudent investment process outlined in these four steps, trustees and investment committee members can reduce their liability by being confident that they are fulfilling their fiduciary responsibilities. Fiduciaries should embrace their responsibilities and understand that they will not be judged on the returns of their portfolio, but on the prudence employed in the creation of the returns. If fiduciaries get the process right, they should be able to achieve admirable returns for their organizations. In the end, it’s not whether you win or lose, it’s how you play the game.

In the following video the difference between buy and hold and active money management strategies are discussed.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

continued from last week…

Top 10 Wealth Management Mistakes

by Akash Joshi

Visit Financial Express to view the complete article

6. Communication hassles

Wealth managers usually will keep sending you a lot of mailers and documents to keep you abreast of your wealth position. Now, there could be an information overkill situation. However, you need to be clear about where your funds are being allocated and how are they being monitored. And this relationship should be clarified at the very beginning of the association. Moreover, it is prudent to work with those who ensure maximum confidentiality and address your communication needs.

7. Protection

Often enough, wealth management is considered to be just about growing a set capital and then deciding how to distribute these monies. Many times, the aspect of protecting and covering assets and lives is not looked into. And many wealth managers, especially those attached with broking firms, tend to overlook this factor as well, or would include this in the investment basket, by using the unit linked route.

This is a grave mistake. You need to insist to your wealth manager to include the insurance aspect as well. And it is most likely that your wealth manager will actually provide you with some sound advice here. “The commissions from life insurance are quite attractive,” says Nikam.

8. Neglecting succession/estate planning

There have been umpteen cases where the family members of the deceased have been involved in bitter legal wrangles over sharing the estate. And most of this happens because a proper legal will was not prepared. Planning the ‘will’ much earlier will ease much of the tension. Your philanthropic activities can also be scheduled in the will.

Moreover, wealth managers now offer trust services where trusts can be created for various purposes and their execution can be managed by the wealth managers. And trusts can be created even when you are alive and they will be managed according to your wishes and direction.

9. Involving family

Though it comes at the bottom of the rankings, not involving your family in the wealth management process could easily be one of the biggest mistakes. Experts recommend that speaking and sharing your overall plans with your family.

Discussing the life goals helps as the clarity, understanding and alignment of all family members is enhanced and therefore the wealth manager can then set up a solution that best fits your requirements. And with the family members involved, the sense of participation also increases, reckon wealth managers.

10. Overdependence

Lastly, wealth managers are human too and they make mistakes. Being completely dependent on them could be as counter-productive as constantly prodding them with suspicion. However, a healthy sense of accountability must be established where performances are questioned and monitored.

Having looked at all these factors, wealth management can be a rewarding experience that can help you fulfill your dreams and aspirations. It can, as a wealth manager says, enable you to see the fruits of your labour and enterprise be translated into happiness. It just requires some smart diligence.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

When determining if you need a wealth manager, and which wealth manager to use, there is a large margin for error. The following article outlines common mistakes to learn from and steer clear of.

Top 10 Wealth Management Mistakes

by Akash Joshi

Visit Financial Express to view the complete article

1. Going it alone

And one of the biggest mistakes people make in this area of wealth management is to do it alone. “I think I can manage stuff on my own and after all I have the knowledge to handle it,” is the usual response. And after completing his post graduation in business studies, even Dhiraj Nikam felt this way. “But it gets more than that. I cannot concentrate on my profession and business and also manage wealth. This is a realization I had,” he adds.

Professionals like lawyers, doctors and even trained financial professionals need specialised wealth management support. And this is because it is not about placing monies in pre-designed compartments - 10% in fixed income, 40% in real estate 40% in equities and the rest in insurance. It is not a product of a software program, but a series of iterations that result in asset allocation, which is designed to meet your life goals.

Professional wealth management service providers go a long way in understanding you and your needs, your lifestyle and your family. They then come up with several plans that could enable you to grow and distribute your wealth. It is better to involve professionals here.

2. The right partner

By an extension of the previous mistake, often high net worth individuals tend to pick up more than one service provider. Vikas Agnihotri, CEO, Religare Macquarie Private Wealth says, “In India, clients provide only a portion of their portfolio to one wealth manager, hence the advice is suitable for only a part of the overall client portfolio. This is in contrast to international practice where investors engage with one wealth manager to provide holistic advice on their entire portfolio. It not only allows disciplined approach to investments but also helps clients achieve their investment objectives.”

And when you express your desire to chose a wealth management partner, there will be many who will line up for what is known as the ‘beauty pageant’ and will present their abilities to manage your wealth. Here, it can be said that it is better to avoid service providers who base their income on commissions from financial product vendors. These are advisors who, often enough, would peddle products based on the commissions that they receive and not the efficacy of the product itself and its match with your life goals.

While most financial planners and wealth managers would be good and competent, one can never be sure of their genuineness. Hence, doing a background check before deciding on someone is a must, for there are still those unscrupulous advisors lurking around, only waiting to catch their next prey.

Yes, the process of choosing a wealth manager should be even more carefully done, then choosing someone to employ. Hence, references are more important here, and, checking up with them equally so. It is, after all, your entire wealth and life you are going to be discussing with this person.

When you go to a wealth manager, note, most of them will have the gift of the gab, but under no circumstances should that intimidate you or make you passive. After all it is a service you wish to buy, hence it is important to ask questions, determine what their plan of action will be and how your money will be invested. Prepare a list of questions you would like answered, to put forth to your wealth manager. Remember, being free and open about talking to your manager, being able to disclose everything and, most importantly, having a comfort level and rapport with him is a must.

3. Clarity

Lokesh Nathany, national head of wealth management, Almondz Global Securities feels “One of the most important parts of wealth management is asset allocation. This is a critical area where many people have made mistakes, by jumping around too much or not changing at all.” And this happens because there is no clarity in why the wealth manager was approached.

“We often get clients who have come to us because their friends told them at a party that our firm had helped them get some quick returns. So here they are,” says a relationship manager with a global wealth management firm.

Though not water-tight, you have to have some clarity on the broad goals that you want to achieve in your life. These goals could be in the form of your children’s education, buying a farm house, children’s marriage, retirement and even beyond your demise.

4. Revisiting objectives

Obviously, as life goes on, objectives and goals keep changing. And when these happen, the wealth manager or the relationship manager must be consulted to reset the entire portfolio. And this is a critical aspect many clients tend to forget, says a wealth manager. In case you have a marriage plan changed to a closer date than planned then you would might have to liquidate a few assets that you have kept for that date. Now, which are the assets that you would liquidate and how do you restructure the portfolio? Such decisions must be taken after great thought, reckon experts. But revisiting objectives just because market circumstances have changed and reshuffling the overall asset allocation mix at regular intervals might not be the right thing to do. But if there are compelling reasons, like the huge bull-run in the past three years (which is not exactly short-term), revisiting objectives and a reshuffle might actually work.

Nathany adds, “Asset allocation, however, should be reviewed periodically and strictly. If it was decided your allocation would be 70% equity and 30% debt, during an equity boom this may change to a 90-10 ratio.”

5. Panic / greed

Wealth management is a long term process and there will be times, especially in the bull-run, when you would be tempted to risk more. These are the times when long and detailed wealth management plans are often shelved, sometimes broken down to indulge in speculation. “One of my clients actually broke our relationship and placed all his wealth on the markets, he even borrowed and took large positions. And when the markets started to tank, he panicked. But then, around 30% of his wealth was washed out in three months,” says a relationship manager not wanting to be named.

It’s first greed and then panic, he adds. You might want to keep some funds aside for speculation, but do not interfere with your wealth management capital and your life goals, unless any of them have changed.

To be continued…

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Over the next few weeks we will be discussing different aspects of wealth mangement.  The following article provides a basic definition of wealth management and what sets it apart from traditional financial advising. 

Top 10 Wealth Management Mistakes

by Akash Joshi

Visit Financial Express to view the complete article

What is the difference between wealth management and portfolio management?

This is easily one of the most frequently asked questions by many - even those who are already tied up with wealth management services. And, with the number of wealth management service providers increasing by the day, the definition will tend to get more diffused.

Wealth management does mean a lot many things to many people. For some it actually amounts to managing the asset portfolio, which usually has three components, like real estate, equity holdings and some insurance. And even in this, the real action is around the equity portfolio - how much you are earning, how your capital is growing, and so on.

But the essence of wealth management, as most managers would tell you, is distinct from portfolio management. It is more long term and entwined with your life rather intimately. It is the creation of wealth to meet individual goals and the goals of the family. It even goes beyond your own life, it could even include your philanthropic and other related aspirations of seeing that your wealth has grown and is well distributed.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

In the following video Paragon’s advisors explained how Paragon’s wealth management investment strategy is different from other financial advisors.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.