Exclusive Interview with fi360’s Blaine Aikin: Competitive Forces Favor Fiduciary Standard
It’s amazing how the experiences of today’s leading fiduciary advocates have overlapped. Most have learned their mission through a grass roots training regimen – some via the brokerage industry, some as a Registered Investment Adviser and some by working in the trust department of a full-service bank. The lure and elegant simplicity of “fiduciary” represents its true beauty. Those who’ve practiced its ways embrace its promise with the fervor of a fire and brimstone preacher, for, to truly understand the import of the fiduciary standard, one must have lived the fiduciary standard.
We’re very fortunate to have Blaine Aikin as our guest for this month’s exclusive interview article. Blaine is President and CEO of fi360. Previously the Chief Knowledge Officer and Director of Training, he is the primary architect of the AIFA program and a major contributor to the development of the Fiduciary Excellence concept that is at the heart of fi360’s products and services. He is the author of numerous articles on the subjects of fiduciary responsibility and investment management, and the author of the monthly Fiduciary Corner column in InvestmentNews magazine. In 2011, he was named to Investment Advisor magazine’s IA25 list of the most influential people in the investment advisory community and in 2012 was named one of the most influential individuals in the 401k industry by RIABiz. He is currently serving as a member of the Board of Directors for the CFP Board of Standards.
FN: Tell us a little about yourself: How have your past experiences helped shape where you are today, particularly as it pertains to promoting the concept of “fiduciary”?
Aikin: My professional career has been a journey through financial management organizations of all types and sizes. Straight out of graduate school I joined the U.S. Treasury Department as a Presidential Management Intern. I became interested in the financial, governance and cultural ramifications of the rapid development that was occurring in my community at the time and left the Treasury to become Budget Officer of Prince William County, Virginia.
Over time, I became increasingly interested in personal financial management, became a Certified Financial Planner (CFP) certificant and joined a major broker-dealer as a registered representative. When our children started to approach school age, my wife and I decided to move closer to our extended family back in Pittsburgh. At that time, I left the brokerage firm and joined an independent registered investment adviser as a principal of the firm. While there, I earned the Chartered Financial Analyst (CFA) designation and became Chief Investment Officer of the RIA. With experience as both a broker and independent advisor, I seized an opportunity to become Director of Product Development and Management for PNC Advisors. In that capacity, I managed products for both fiduciary (high net worth and institutional) and non-fiduciary (brokerage) distribution.
While at PNC, I earned my Accredited Investment Fiduciary (AIF) designation from fi360. In 2004, I joined fi360 as Chief Knowledge Officer and in 2007 became President and CEO of the firm. My interest in financial management, especially investment management, coupled with an ongoing desire to learn, have pushed me along my career path. Additionally, I believe the diversity of my background in the public and private sectors, brokerage and investment advisory businesses, and in product development and distribution has helped provide me the broad skill set I need today in managing operations and activities of fi360.
FN: Give us a short history of fi360, when did it begin, what circumstances led to its creation, who were its original backers and how was it initially received?
Aikin: fi360 was formed in 1999 by Don Trone and Roger Gibson. Don and Roger were among the first to call attention to the central role the fiduciary standard plays in relationships of trust, specifically the relationship of trust that exists between investment advisors and their clients. In the early years, with limited resources but a compelling concept, the business philosophy was essentially, “if we build it, they will come.” Don, Roger, Rich Lynch, and a handful of other talented individuals launched fiduciary training and tools and proceeded to make the advisory community aware of fi360 through public speaking and networking activities. They preached the gospel of fiduciary responsibility with missionary-like zeal. Like most small businesses, the early going was slow but, fortunately, the pioneers at fi360 were persistent.
FN: How do you contrast the mission of fi360 from the many other professional certification groups currently available to financial service providers?
Aikin: fi360’s mission is to promote a culture of investment fiduciary responsibility through education, technology, knowledge, support, and leadership to improve fiduciary decision-making. We are unique in that we go beyond education to provide the practical tools and resources for practitioners to succeed in a business sense.
From a training perspective, our Accredited Investment Fiduciary (AIF) and Accredited Investment Fiduciary Analyst (AIFA) professional designations are intended to complement, not compete with, investment and financial planning professional certifications. We delve deeply into the legal, regulatory, and best practice dimensions of the fiduciary standard with professionals who have prerequisite investment knowledge and experience.
Because we focus on the ongoing professional success of our designees, toolkit subscribers, and other constituents in the context of adhering to the investor-centric fiduciary standard, we are more of a membership organization than a purely academic certifying organization. We educate, equip, and continually support our clients. In doing so, we help them serve their own clients better.
FN: What are some of the greatest accomplishments of fi360 to date?
Aikin: I would offer the following as areas where I believe our organization has a reputation for particularly meaningful contributions.
- Raising the general understanding of the fiduciary standard within the field of financial services.
- Publishing the Prudent Practices handbook series with full legal substantial, as well as technical assistance from the AICPA, to serve as the definitive source of guidance on investment fiduciary responsibilities.
- Educating over 1,000 investment fiduciaries each year on their obligations to the investors they serve.
- Developing an ever-expanding suite of analytical tools to enable investment fiduciaries to meet those obligations more effectively.
- Providing third party verification of conformance to fiduciary practices through the Center for Fiduciary Excellence (CEFEX), an organization we co-founded.
- Informing regulators, legislators, and other key constituencies about the history, meaning, and significance of the fiduciary standard as it relates to the most pressing investor protection and professional integrity issues of the day.
- Changing the business practices of thousands of financial professionals to serve the interests of their clients more effectively and, in so doing, further their business success.
FN: What are some of the current challenges faced by the group and its members, and how would you recommend addressing them?
Aikin: The challenges confronting fi360 are defined by the challenges faced by the investment stewards, advisors, and managers who are our clients. Uncertain financial markets, unsettled regulatory issues, and the steady stream of financial scandals that undermine investor confidence in financial institutions and their representatives are among the biggest concerns today. While these circumstances create a difficult business climate generally, they accentuate the need for a culture of fiduciary responsibility.
Fortunately, the fiduciary standard is timeless. It is defined by bedrock principles of loyalty and care. It also evolves through the required application of best investment practices that conform to the demands of changing economic and market conditions. Those who adopt strong fiduciary processes are well-positioned to earn the trust and confidence of those they serve. Times of the greatest challenges present the greatest opportunities and we believe fi360 and our members are well positioned to seize the opportunities that exist today.
FN: What are the near-term goals of fi360?
Aikin: Our near-term and long-term goal is to advance our mission of promoting a culture of fiduciary responsibility and improving the decision-making of investment fiduciaries. Let me give you three examples of initiatives we are undertaking right now to serve our mission.
First, we are expanding our practice management capabilities. Earlier this year we acquired Financial Service Standards to provide specialized training and practice management capabilities for advisors serving the 401K marketplace. We will be expanding our practice management capabilities significantly in some important areas in the coming months.
Second, we are introducing important new training and continuing education programs. We have developed and are about to roll-out the Financial Planning Association’s Fiduciary Implications of Financial Planning Program that provides ground-breaking instruction on how the fiduciary standard applies to the practice of financial planning. Additionally, we are introducing new Fiduciary Essentials and Fiduciary Academy training and continuing education programs designed for Investment Stewards, such as retirement plan sponsors, trustees, and institutional investment committee members, and for Investment Advisors. Both of these training initiatives involve non-designation programs that promote a higher level of fiduciary awareness.
Third, we have just released updated editions of the Prudent Practices Handbook series. These Practices and associated legal substantiation citations have been updated and the narrative has been expanded. This has been a very comprehensive undertaking involving independent fiduciary experts, several outside legal teams, and technical editing by the AICPA.
More details can be found on our website: http://www.fi360.com/news/detail/prudent-practices-update
FN: Where do you see fi360 in 10 years?
Aikin: fi360 will be true to our mission. In 10 years we will continue to provide the best, most comprehensive, training, tools, and resources for investment fiduciaries. The capabilities will be even broader and deeper than they are today and the audience we serve will be substantially larger.
FN: No doubt fi360 is immersed in the fiduciary standard debate [see FiduciaryNews.com’s earlier exclusive interview with fi360 Senior Policy Analyst Duane Thompson]. Tell our readers what you think is the ideal culmination to this debate.
Aikin: Regulation is the direct path to action on the fiduciary debate. It would be in the best interest of investors if the SEC extends a strong, ’40 Act version of the fiduciary standard to all who provide advice to retail investors. Whether or not this will happen remains to be seen. My sense is that whatever the SEC does will invite a lawsuit from the either the strong or weak standard sides of the issue.
It is worth noting that when the Investment Advisers Act of 1940 was passed it was principally to protect investors but the secondary objective was to protect the honest, capable adviser from damage by unethical and incompetent practitioners who were not sufficiently accountable to the high fiduciary standard of conduct. Both of these reasons still exist and should drive current reforms.
Importantly, the marketplace is not waiting for regulatory change. Competitive forces increasingly favor fiduciary conduct for both client and business success. Forward-looking firms are moving to fiduciary-focused business models without waiting for regulatory action.
FN: How is fi360 actively participating in the fiduciary standard debate?
Aikin: While fi360 actively communicates with regulators, legislators and like-minded professional associations to help inform the fiduciary debate, our primary focus is on helping our clients succeed by ingraining fiduciary processes in their operations. Change is actually being driven more strongly from the bottom-up, practitioner level rather than the top-down level of legislators and regulators.
FN: Where do you see this debate going? When will it end? What is the likely outcome?
Aikin: Political paralysis and the power of massive lobbying dollars make for a much more complicated situation than it should be. Advice is a fiduciary function and professional advisors should be held to the high fiduciary standard of conduct. Investors who know what a fiduciary standard means say that is what they want. Competent professionals who have devoted time and resources to mastering their craft want to protect the reputation of their profession. The proper solution of extending the undiluted fiduciary standard to all who provide advice is quite obvious. Even so, that doesn’t mean legislators and regulators will do the right thing and I certainly don’t expect things to be resolved at the regulatory level anytime soon.
The thing that gives me hope is the reality that competitive forces are increasingly at work on this issue. The louder the debate is and the longer it lasts, the more awareness of the issue builds and the stronger the competitive impetus for a strong fiduciary standard becomes.
FN: Barbara Roper worries regulators may, in our words, “dumb down” the definition of “fiduciary” and suggests we consider replacing the term with an operational definition more easily understood by the marketplace. Why or why not do you think this might be helpful?
Aikin: I believe it is more accurate to say that fiduciary advocates, including Barbara Roper, are concerned that regulators will dilute the fiduciary standard by compromising core principles to protect industry profits and preserve established industry business practices that involve conflicts of interest.
The most straight forward regulatory approach would be to simply apply the Investment Advisers Act to all who provide personalized advice. Judge Benjamin Cardozo famously warned of the “disintegrating erosion of exceptions” to the fiduciary standard. Exceptions add complexity and weaken investor protections.
I certainly favor making the meaning of the fiduciary standard more understandable for the investing public. Advisors and fiduciary advocates are in better positions than regulators to educate the public in this regard. They can inform investors that only fiduciaries will commit in writing to serve their clients’ best interests, avoid conflicts of interest, provide full disclosure of all information material to the investors’ decisions, and to act with the care, skill, and competence of a professional. That is the essence of what it means to be a fiduciary and investors will find it hard to understand why a professional advisor would balk at any of these responsibilities.
FN: Based on your broad experience in the fiduciary realm, if you had the chance to speak into a magic megaphone that would allow all investment advisers to hear you, what would you say?
Aikin: Above all else, investors seek trustworthy and competent advisers. These qualities directly correspond to the defining fiduciary duties of loyalty and care. Advisors who understand and apply fiduciary best practices promote client satisfaction, their own business success, and the reputation of the investment advisory profession. Fiduciary leaders are, and will increasingly be, favored in the marketplace over those who are not prepared to provide competent, trustworthy advice with full fiduciary accountability.
FN: Blaine, it’s been both a pleasure and an honor to be able to speak to such a well-regarded fiduciary thought-leader. On behalf of FiduciaryNews.com and its many readers, thank you ever so much for sparing some of your precious time and giving us an excellent overview of the past, present and future of fi360 as well as your vision regarding the prospects of a universal fiduciary standard.