To Be, Rather Than to Seem
The Virtue of Fiduciary Duty
I was recently reading Skin In The Game by Nassim Taleb and was captivated by a chapter in the book titled, “The Merchandising of Virtue.” In that chapter, Taleb discusses the importance of virtue, or colloquially, what you do when no one is looking. To be, rather than to seem.
The maxim “To be, rather than to seem” is particularly relevant to the retirement plan services industry. How often does an e-mail from NAPA Net or 401(K) Specialist land in your inbox summarizing the latest ERISA lawsuit, where XYZ service provider is named in the claim for a breach of fiduciary duty, but reflexively denied the claim on the basis of non-fiduciary status? I count three such e-mails in my inbox right now.
A key issue arises not necessarily due to the exclaim of “we’re not a fiduciary!” but instead from the sequence of events that led to XYZ service provider being named in the suit in the first place. That is, the common practice of muddying the “fiduciary vs. non-fiduciary” waters for the plan sponsor or the representative committee making the service provider decision. The prospective client is told “yeah, we do the same thing” or “we’re a co-fiduciary” and presented with coordinated materials that offer the same message …
[Narrator’s voice: But they were in fact not a fiduciary.]
Taleb would say that virtue (read: fiduciary status) is being exploited for image and personal gain.
As evidenced by the mounting number of fiduciary breach claim lawsuits, there is an unequivocal difference between someone or some entity acting as a plan fiduciary versus the opposite. The courts (see Donovan v. Bierwirth and Meinhard v. Salmon) have stated that a fiduciary’s duties are the highest known to the law and that a fiduciary (specifically, a trustee) is held to something much stricter than the morals of the marketplace.
The idea of an ERISA fiduciary is rather simple – that a person or organization has duties to plan participants and their beneficiaries. They have a duty of loyalty, a responsibility to act solely in the participants’ best interest and to avoid conflicts and self-dealing. They have a duty of care, a responsibility to act diligently and carry out functions in an ethically-sound manner. So why represent the status of a fiduciary (seeming) and not act the part (being)?
It is clearly important for industry practitioners—especially plan advisors, to whom plan sponsors look to for independent guidance—to recognize the fiduciary vs. non-fiduciary distinction. More importantly, oblige service providers to be specific on the front end as to what fiduciary responsibility they accept—what skin in the game they have. They should be, rather than seem.
Honest admission: I originally planned to title this blog post, “Esse Quam Videri,” the Latin phrase meaning “To be, rather than to seem,” however I realized that I would be falling victim to the same approach criticized above. See, I wasn’t familiar with the Latin expression (Google quickly educated me) but would be falsely holding myself out as being knowledgeable of the phrase. To be, rather than to seem.
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