Investment Stewards, generally with the assistance of Investment Advisors, have primary responsibility for effective management of the investment process, including faithful adherence to investment fiduciary practices. The Investment Steward is responsible for managing the overall investment strategy: deciding on the asset allocation, defining the details of the strategy, implementing the strategy with appropriate Investment Managers, and monitoring the strategy on an ongoing basis. An Investment Advisor may be called upon by the Steward to assist in this process, or to assume direct responsibility for certain fiduciary duties delegated to, and accepted by, the Advisor.

Investment Stewards have different functions:

• Steward of a qualified or public retirement plan
• Steward of a foundation, endowment
• Steward of government funds

The Standard of Practice used to assess Investment Stewards is based on the Handbook: “Prudent Practices for Investment Stewards”, published by fi360. Each practice has been substantiated by legislation, case law, and/or regulatory opinion letters from ERISA, UPIA, UPMIFA, and MPERS.

Please click here to download Fiduciary Practices for Investment Stewards

Benefits of fiduciary assessments for Stewards:

CEFEX offers 2 forms of fiduciary assessments for Investment Stewards. Both types are based on the Global Fiduciary Standard of Excellence, and use the methodology described in the “Consultants Assessment of Fiduciary Excellence (CAFÉ)".

Consulting Assessments are typically performed when the Steward requires advice on its fiduciary practices, and may want the Analyst to assist in the development of documentation, processes, or investment practices. The Analyst is supported by the CEFEX system, whether it be technical assistance with Analytics tools, fiduciary practice interpretation from the CEFEX expert panel, or having the most recent assessment methodology. The Analyst’s work is registered with CEFEX and reviewed for completeness. Upon completion, the Steward receives an Opinion Letter from CEFEX, thereby assuring the assessment process was completed according to CEFEX standards. The Steward contracts directly with the CEFEX Analyst for these types of assessments. A formal agreement with CEFEX is NOT required.

Certification Assessments are performed by an independent Analyst who has an impartial perspective on the Steward’s practices. When successfully completed, this assessment results in a public certification as described on this site. This type of an assessment is beneficial to Stewards who wish to publicly demonstrate their adherence to the Global Fiduciary Standard of Excellence, specifically to staff, plan participants, boards of directors, or donors. These assessments may follow a Consulting Assessment, however a formal agreement with CEFEX is required. When performed within 6 months of a Consulting Assessment, the fee is significantly reduced because the CAFÉ has already been completed.

Self Assessment

Investment Stewards can determine their readiness for a certification assessment by performing a “Self Assessment of Fiduciary Excellence: SAFE”. Please download the SAFE below, or perform an on-line SAFE by clicking here: http://safe.actifi.com

Stewards of Qualified or Public Retirement Plans

The Employee Retirement and Income Security Act (ERISA) imposes on the Retirement Plan Sponsor, an obligation to act solely in the interests of participants and on those involved in managing the investment of plan assets an obligation to follow a prudent investment process. What does this mean?

A prudent investment process involves a number of practices including the following:

These practices require that Stewards act as “prudent experts”, a standard demanding professional investment expertise. The CEFEX assessment provides a disciplined approach to ensuring all responsibilities are addressed.

Flexible Fiduciary Assessments for Plan Sponsors

CEFEX offers a range of assessments for plan sponsors, addressing relevant fiduciary matters. Please click here for an overview of our services.

Service Provider Disclosure Review

The Department of Labor now requires 401(k) and defined benefit retirement plan sponsors review all service provider disclosures and confirm that their arrangements with these providers are necessary and reasonable. Plan sponsors and their officers who make 401(k) decisions, face lawsuits and penalties if they do not take steps to comply with the new regulatory requirements. Please click here for an expert commentary on this matter. Please click here for a description of how CEFEX can help plan sponsors, including the issuance of a legal opinion letter to help reduce risk.

Participant Disclosure Review

The Department of Labor requires 401(k) plan sponsors to ensure plan participants receive comprehensive disclosures of all expenses charged directly to their accounts or indirectly through investment management fees. Please click here for a description of how CEFEX can help plan sponsors with this responsibility.

Mandating certification of Service Providers

Investment Stewards should mandate CEFEX certification of their service providers in order to ensure fiduciary diligence is prevalent throughout the investment environment. For retirement plans, the ERISA contains many sections which specify Investment Steward responsibilities for qualified plans. In each case, CEFEX certification delivers an effective means for providers to help Stewards meet these responsibilities:

• Investment Stewards should have a due diligence process for selecting investment options, and the process is consistently applied. (Per §402(c)(3); §403(a)(1) and (2); §404(a)(1)(B))

CEFEX-certification of an Investment Manager or Advisor verifies the existence of due diligence in selecting investment options, thereby forming an excellent basis for the oversight by a Steward. Through the certification process, the Investment Steward delegates this highly specialized task to a CEFEX Analyst, who is an investment expert.

• Investment Stewards must apply a documented due diligence process in selecting service providers. (Per §402(a)(1); §402(b)(2); §404(a)(1)(B))

When a Steward selects a CEFEX-certified firm, the Steward has intrinsically applied a due diligence process since the CEFEX firm has been rigorously assessed to documented diligence parameters. Fundamental due diligence screens for governance, and fiduciary practice, allow the Steward to focus on specific investment strategies and retirement plan features.

• Investment Stewards periodically review qualitative and/or organizational changes of investment decision-makers. (Per §3(38); §402(c)(3))

A CEFEX-certified firm is assessed on an annual basis, when both qualitative and/or organizational changes are reviewed to determine whether or not fiduciary practices are affected. The CEFEX-certified firm is obligated to report changes to its clients, and this is verified in the assessment process.

• Investment Stewards must verify that fees for investment management are consistent with agreements and with all applicable laws, and that fees are periodically compared to industry benchmarks. (Per §3(14)(B); §404(a)(1)(A),(B) and (D); §406(a))

Investment portfolios of CEFEX Investment Advisors are annually benchmarked against peer groups using the fi360 Analyzer. The CEFEX Analyst uses this tool to identify watch-listed investment options, including a screen for fees. Thresholds for watch-lists are established and the Advisor must explain significant deviations.

• Investment Stewards must periodically review agreements and contracts to ensure consistency with needs of the managed assets. (Per §3(14)(B); §3(38)(C); §402(c)(2); §403(a)(2); §404(a)(1); §408(b)(2))

The CEFEX assessment includes a detailed review of the Advisor’s Service Agreement to ensure compliance with regulation, specifically § 408(b)(2) and to ensure it is used for all clients. Since the certification is renewed annually, this periodic review helps the Investment Steward fulfill this obligation.

Conclusion

By hiring CEFEX-certified firms, the Investment Steward is greatly increasing the prudence by which it manages plan assets. This is a significant task. Investment Stewards must use this program, at a minimal cost to their plan, to increase the fiduciary excellence in overseeing the management of investors’ assets. The result is an increase in trust throughout the retirement system.

Foundations compete with other philanthropies for donor dollars. In an environment of increasing investment anxiety and questionable trust, such competition can be particularly fierce. CEFEX certification can help to overcome donor anxiety and mistrust by publicly demonstrating a foundation’s outstanding commitment to accountability, diligence and fiduciary process. Certification also enables a foundation to maximize investment performance and thereby maximize support of its donors.

Please click here for a description of how CEFEX can help foundations and endowments.

CEFEX-certified foundations meet a standard of excellence established for Investment Stewards. The standard is represented by The Investment Steward Practices which are substantiated by legislation, including the Uniform Prudent Management of Institutional Funds Act (UPMIFA), case law and, where appropriate, regulatory opinion letters.

Within the Investment Steward standard are practices requiring sound oversight and transparency of investment and spending policies. Oversight in the form of due diligence in the selection of asset managers and in monitoring their investment performance on an ongoing basis is an important fiduciary function. For most foundations with numerous endowed and non-endowed funds to oversee, this can involve dozens of managers.

The fiduciary burden is increased for community foundations that will engage a donor’s financial adviser to manage the donated assets. Institutionalizing the practice multiplies the burden. To mitigate fiduciary exposure, foundations should ensure that they have policies and resources adequate to meet the challenge of multiple managers. Further, they may require a donor’s adviser to submit to independent assessment in the form of CEFEX certification to verify that the adviser, as a manager of the foundation’s assets, conforms to a comprehensive standard of fiduciary practice. Indeed, foundations can require such certification of all of their asset managers.

Foundations serve important philanthropic needs in the communities they serve. Access to continued donor support is crucial to their success. Being able to demonstrate their trustworthiness as stewards of donor assets is an integral part of maintaining that access. CEFEX Certification serves that purpose by verifying the foundation’s conformity with best practices and, where implemented, by verifying the conformity of its asset managers.

Stewards of Government Funds

Governments have a responsibility to oversee the mission, strategic direction, finances and operations of their respective organizations. They have an especially high commitment to fulfill these responsibilities honestly and with integrity. With respect to the treasury function, they must establish clear and understandable policies and ensure that they are followed.

Managers of governmental or public funds administer, direct, control, account for, report on, and monitor hundreds of billions of public dollars through governmental investment programs. This institutional environment is markedly different than for-profit sectors in that they must invest as well as borrow; maintaining long-term funds for social purposes such as housing programs, or maintaining short-term funds for governmental daily expenditures. An understanding of the dynamics of cash flow is vital for successful investments, as well as recognition of their fiduciary duties and responsibilities to the public.

Fiduciary duties and responsibilities such as setting investment objectives, developing and implementing an investment policy and investment committee, developing cash flows, performing broker/dealer and custodian due diligence, implementing internal controls, selecting, diversifying, and purchasing investment securities, recording and properly accounting for investments, monitoring the portfolio and evaluating and reporting the results are just a few of the fiduciary duties and responsibilities public investment managers have. A CEFEX-certified public fund demonstrates to the public that fiduciary procedures are in place and that investments are prudently managed.