Customer Reviews

The New Fiduciary Standard: The 27 Prudent Investment Practices for Financial Advisers, Trustees, and Plan Sponsors

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This is a must read book for fiduciaries and investors everywhere. Tim Hatton, President of Hatton Consulting, a registered investment advisor in Phoenix, does an excellent job of explaining why there is a standard of conduct for fiduciaries, what that standard is, and how to incorporate this fiduciary standard into our everyday business models. He begins by reviewing investors' behavior during the late 1990's, and uses this example to show what happened when investors abrogated sound investment principles in favor of wild speculation in search of above market returns in the stock market. He makes a case that investment return is far more dependent on investor behavior than fund performance. His solution is to make sure that investors are in alignment with sound investment principles, and to manage the investment process by not straying from these principles during the twists and turns of the markets. This is the essence of what a fiduciary does.

A fiduciary puts his clients' interests first. That should be standard operating procedure for each of us and is the clearly stated goal of the AICPA. That is why they have endorsed Tim Hatton's new book "The New Fiduciary Standard."

There are more than 5 million fiduciaries in the U.S. today. These may include investment advisers, trustees, accountants, attorneys, and consultants. It is possible that you might be considered to be a fiduciary and you don't even know it!

The first part of the book is an excellent discussion of the history of modern portfolio theory. This section is a good read and will appeal to those who have an interest in investments. I particularly enjoyed his discussion of the Fama-French 3-Factor Model. Mr. Hatton concludes this section by saying that "the best way ...is to use the investment tools that have been developed on the basis of the principles of Modern Portfolio Theory." These tools represent a sound investment strategy.

The second part of the book is a discussion of the 5 steps and 27 practices of the fiduciary standard and how he incorporates these into his practice. He systematically goes through each step and each practice to show what his firm does to implement each of these steps of the fiduciary process. This part of the book is very much about "process" and the proper execution of this appropriate process. Hatton walks us through the steps of analyzing the investor's current position, achieving diversification through asset allocation, formalizing an investment policy that is appropriate for the investor, how to implement this policy, and how to monitor the portfolio and supervise money managers in order to better accomplish the investor's investment objectives. I was able to apply his discussions about "Best Execution Policy" and "Monitoring the Portfolio" to better explain what our firm does. These are responsibilities that we should take seriously.

There can be no question that we can benefit from seeing how we measure-up in our roles as fiduciaries. What a great way to get better at what we do. Tim Hatton and the Foundation for Fiduciary Studies not only provides a standard, but also tries to make it real for us, so that we can apply it in our everyday work lives. I would challenge each of you advisors to improve your process. This book will help you do it. Investors should now know what to look for when hiring an advisor. Does your advisor measure up? Does he put your interests first? Or are there conflicts of interest?

The author does a good job of explaining the Prudent Investment Practices and how these are incorporated into his investment advisory process. This will be a good book for investment consultants who are looking to define a disciplined investment process for their practice. This is a clearly defined picture of the future of high quality investment advice.

This is an excellent book that lays our the standards for fiduciaries. Although it would be helpful for those looking aroudn for a financial advisor, it goes through the specific standards that are most relevant for fiduciary practices. It isn't long and doesn't waste time. If you are in the financial advisory business, you should get this. It will make you think through the details of how you service clients.

I came across this book through someone that is a frequent user of the Fi360 website. From a practical standpoint, the information you learn through reading this book can save you from a lawsuit or give you a defensible leg on which to stand! However, from a good-guy (person) perspective, embrace your fiduciary duty; if you are giving investment advice you owe a fiduciary duty to your clients. After reading this book, I'm considering adding the AIFA or AIF designation.