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Exclusive Interview: Don Trone Reveals 401k Plan Sponsors Want This Instead of a Fiduciary

November 18
00:03 2014

For a long time, I’ve been asked to feature Don Trone in one of our monthly exclusive interviews. When Rear Admiral Steve Branham sought me out at Washington DC’s Fiduciary Summit to present me a copy of Don’s new book, I told Don_Trone_Photo_Low_Res_300him as much. I finally had a chance to speak to Don personally in San Antonio at last month’s CFDD conference. He was overjoyed to receive the invitation, and, I must admit, I was honored he accepted it. In many ways, Don has been on the vanguard of all things fiduciary for more than a generation. What excites me more is his current initiative. It promises to go beyond “fiduciary” and get to the heart of what really matters to investors and their service providers.

Don Trone GFS® is the founder and CEO of 3ethos. Prior to the formation of 3ethos, Don was the principal founder and CEO of fi360; founder and President of the Foundation for Fiduciary Studies; and was selected to be the first person to head the Institute for Leadership at the U.S. Coast Guard Academy. He has authored or coauthored more than twelve books. His latest, which he coauthored with Mary Lou Wattman, is entitled, LeaderMetrics®: What Key Decision-makers Need to Know When Serving in a Critical Leadership Role. In 2003, Don was appointed by the U.S. Secretary of Labor to the ERISA Advisory Council; and, in 2007 he testified before the U.S. Senate Finance Committee on the fiduciary practices associated with the use of alternative investments in pension plans. He is a graduate of the U.S. Coast Guard Academy and served eleven years on active duty, including six years as a Coast Guard helicopter pilot. He received his Master’s degree from The American College and completed postgraduate studies in theology from Pittsburgh Theological Seminary and Trinity Episcopal Seminary.

FN: Tell us a little about your background and how you came to embrace the concept of “fiduciary.”
Trone: I began my love affair with “fiduciary” in 1987 when I wrote my Master’s thesis The Integration of a Fiduciary Standard into an Investment Advisory Practice. That was 27 years ago and the thesis has served as my primary outline for all the books I have written, or coauthored, since; including, LeaderMetrics, Freedom from Wealth, Fiduciary Ethos, The Management of Native American Investment Decisions, Prudent Investment Practices, The Management of Investment Decisions, and Procedural Prudence.

FN: Specifically, what led you to come up with the idea and create fi360? What were the initial objectives of the organization? How have those objectives been achieved?
Trone: I started in 1999 the two companies that would eventually be rolled up into fi360. My initial objectives were to build the first training center for fiduciary studies, and the first web-based technology company to support a fiduciary process. These two objectives were accomplished by 2003. By 2007, both the training and technology companies were listed as two of the fastest growing companies in Western Pennsylvania.

In addition, I founded the Foundation for Fiduciary Studies in 2000 for the purpose of developing the first set of practices which could be used to define the details of a fiduciary standard of care. The first Directors – the men and women I credit as being the real pioneers of the fiduciary movement – included Bill Allbright, Susan Davis, Rich Kopes, Charles Lowenhaupt, Tom Mackell, Gene Maloney, Don Philips, Bert Schaeffer, Bob Seaberg, Frank Sortino, and Mary Lou Wattman. In 2003, the Foundation published Prudent Investment Practices, which still remains the #1 Googled source for “SEC fiduciary practices.”

I left fi360 in 2007 when the local, former investors in fi360 and I had significant differences in the direction of the company, and in the values upon which I built the company.

FN: In your new book (LeaderMetrics), you’ve devised a systematic approach to leadership. How did you discover this method and what sparked your interest?
Trone: Also around 2007, it was becoming apparent that no matter how positive we tried to present the subject of fiduciary responsibility, it scared the living daylights out of folks. Even surveys, such as the LRN-Rand Study commissioned by the SEC in 2007, revealed that investors didn’t understand, nor cared, about the differences between a suitability and a fiduciary standard. What investors cared about is whether they could trust the person who was providing them investment advice. Today we would say investors and trustees feel the most secure when they are able to view their advisor as a leader.

It was about this same time that I received an offer to become the Director of the Institute for Leadership at the Coast Guard Academy. I had a gut feeling when I accepted the position that I might find an answer to the nagging question: Is there a link between fiduciary responsibility and leadership?

Midway through my eighteen month tour at the Institute I discovered that I couldn’t find a model that integrated the dimensions of a decision-making framework (a fiduciary standard) with leadership. There were lots of books on leadership – an equal number on decision-making and project management – but, no book or framework that linked the two together. It was then that I decided to start a new company that would focus on research that would integrate leadership, stewardship and governance (fiduciary responsibility). Since then, Mary Lou Wattman and Rear Admiral Steve Branham (USCG, Retired) have joined me as co-founders.

FN: I’m always interested in the psychology of leadership, which is something you’ve focused on in LeaderMetrics®. Can you outline some of your findings?

Trone: We credit Simon Sinek as having the greatest influence on our writings about how certain hormones are released when we are operating in a fiduciary mode versus a leadership mode. We process complex analytics and communications (fiduciary responsibility) in the neo-cortex portion of the brain. The neo-cortex produces the hormone cortisol, which is an inhibitor to the creation of the happy hormones – oxytocin, serotonin, and dopamine. This helps to explain why we scare the living daylights out of folks when we talk about fiduciary responsibility.

On the other hand, feelings associated with leadership – trust, love, passion, and security – are processed in the limbic portion of the brain. The limbic is where the happy hormones are produced. When we come across as an authentic leader to our clients and prospects, we are helping to produce the hormones that are associated with trust and security. You could say that our research is the newest branch to the tree of behavioral finance.

FN: Your book as well as your new company, (called “3ethos”), focuses on ethos (credibility), one of the three elements of Aristotle’s Rhetoric – the others being pathos (emotion) and logos (reason). The idea that credibility and leadership are intertwined is fascinating. Your book explains this very well. Can you briefly describe how you define credibility and why it’s critical to leadership?
Trone: You’re correct; the ancient Greeks believed that you could tell a lot about the character of a person, group or society by analyzing their ethos. Ethos consists of three elements – behavior, core values, and decision-making – hence, the name of our new company: “3ethos.” With great individuals and organizations you’ll see that the three elements are in balance; that there is a continuum. Why do organizations like Google, Apple, Starbucks, Nordstrom, the Ritz and Southwest stand out? Because they all have a well-defined ethos.

Likewise, credible advisors have a well-defined ethos – there is a continuum and balance between the advisor’s behavior, core values, and decision-making process. Or, we could say that credibility is established when there is a continuum and consistency between the advisor’s leadership, stewardship, and governance.

FN: Summarize for our readers how leadership and being a true fiduciary overlap.
Trone: The overlap is with governance – decision-making. Great fiduciaries, leaders, and stewards must be able to demonstrate and communicate the details of their decision-making process. That said, I’d like to expand upon your question to highlight the differences. After seven years of research, we would say that a fiduciary standard is the floor to a professional standard of care – leadership and stewardship form the ceiling. A regulatory fiduciary standard only defines the minimum requirements (floor) that must be met in order for an advisor to be compliant. To illustrate, compare and contrast the following two definitions:

  • A fiduciary puts the interests of the client first.
  • A leader and steward has the ability to inspire and engage others, and is passionate and disciplined about protecting the long-term interests of the client.

Which of the two statements evokes a higher sense of purpose? Which is intended to broaden and deepen the client relationship? Which is better in building client trust and loyalty? Now you can understand why we say that elite advisors have begun to define themselves in terms of being a leader and steward, as opposed to being a fiduciary.

To further illustrate, there is a lot of discussion about what needs to be done to improve 401k participant outcomes. After reading LeaderMetrics, advisors should discover that most 401k “fixes” require a leadership and stewardship response, as opposed to more rules and regulations. Trust has the greatest impact on participant outcomes – if a participant does not trust the company they work for (and 66% of workers are not emotionally engaged in the work they are doing, or inspired by the company they work for), then they’re not going to trust the company’s 401k plan. Trust is inextricably linked to leadership and stewardship.

FN: What is the hardest part about being a leader/fiduciary?
Trone: Succumbing to an ethical breach or temptation as a result of a thoughtless transgression. I am sure Tiger, Elliot, and Lance would gladly trade their fortunes for a 5-minute do-over. Or, doing nothing “wrong,” but at the same time lacking the courage to speak up when everyone else is involved in a dishonest or unethical act. There is a great quote that we use at West Point when we are conducting leadership training for elite advisors: The standard you walk by is the standard you accept.

As fiduciaries we need to remember that much of what passes as being legal and compliant is not always ethical. And the answer is not more rules and regulations. In the history of civilization, more rules and regulations has never translated to improved ethical behavior. More rules and regulations has only made it easier for the dishonest to hide within the complexity of a regulatory bureaucracy.

FN: What is the single most important lesson that you learned as a result of your writing LeaderMetrics?
Trone: That’s a good question. I would say it’s the importance of knowing how to integrate leadership and stewardship with decision-making. It’s about comfortably moving between the limbic portion of the brain (love and trust), with the neo-cortex (complex decision-making). To be successful, advisors need to have a keen sense of situational awareness; to know when they are being called upon by their clients to be a good leader and steward, and when they need to be a good governor (fiduciary).

FN: If you can describe how you’d envision the retirement services industry in 10 years, what would it look like?
Trone: I’m afraid it’s going to look like the retirement version of Obamacare – it will be a government-run, mandatory plan similar in design to the Federal Retirement Thrift. For this reason, we encourage retirement advisors to diversify their client base by also working with foundations, endowments, personal trusts and wealth holders. In terms of leadership, stewardship, and governance, the advisor can use the same integrated framework for any type of client.

FN: Do you have any other thoughts, ideas, or comments that you’d like to share with our readers?
Trone: I started this interview by talking about my 27-year love affair with fiduciary. As with many affairs of the heart, this long-term relationship is being challenged. I am particularly concerned about so-called fiduciary advocates who are attempting to commercially exploit the movement; or, those who are using the movement for the sole purpose of broker-bashing.

Such exploitations make good bylines in the financial press, but accomplish little else as evident by the fact that there is more derision today within the financial services industry than any other time. I have yet to find a correlation between an advisor’s registered status (registered rep versus RIA) and integrity. Some of the best advisors I know in the industry, including the team that advises my parents, are brokers.

This discord only makes the task of defining appropriate fiduciary standards by the SEC and DOL all the more difficult. I think we will eventually (not before the 2016 election) get new regulations from the SEC and DOL, but they will be bronze, as opposed to gold, standards. The regulators are not going to define professional standards for our industry – that’s not their job – that’s our (the industry’s) job. We must take it upon ourselves to define what it means to be a leader, steward, and governor and do so in a way that is business neutral. Investors need to be able to view their advisor as being their point of inspiration for moral, ethical, and prudent decision-making.

FN: Don, thank you so much for sharing your thoughts and insights with our readers.

Interested in learning more about important topics confronting 401k fiduciaries? Explore Mr. Carosa’s book 401(k) Fiduciary Solutions and discover how to solve those hidden traps that often pop up in 401k plans.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada. His forthcoming book Hey! What’s My Number? – The One Thing Every Retirement Investor Wants and Needs to Know! Will be available later this year.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Dick Purcell
    Dick Purcell November 19, 11:06

    Chris, please post this interview some place where reader responses can be seen by other readers.

    Dick Purcell

  2. Steve Mueller,,,ERISA COUNSEL
    Steve Mueller,,,ERISA COUNSEL November 19, 12:09

    Those same lessons are learned as an officer in the armed forces,,,leadership, trust, integrity or the mission fails

  3. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author November 19, 12:32

    Dick, all readers should be able to see these comments whether they are subscribers or not.

  4. Dick Purcell
    Dick Purcell November 19, 14:27

    Thanks, Chris.

    I believe Mr. Trone means well, especially after hearing Rick Ferri say so. But if so, Mr’ Trone has no understanding of investment probabilities math. The fi360 he set up misguides investors in favor of advisors and fi360 itself.

    1. By setting “expected return” as the criterion for meeting a client goal, fi360 sends the client toward probable failure. As years go by, an investment’s actual result is expected to fall further and further below what “expected return” would deliver.

    2. By misusing the fear-word “risk” to divert investor attention to his short-term fear for the individual year, fi360 diverts the focus from the real risk of falling short of future needs and goals — and diverts investor focus from the long-term compounded cost of advisors’ fees.

    3. By switching placement of investor’s money from a selected mix of whole diversified asset classes to less-diversified riskier bets within the asset classes — and doing the switch with the false appearance of faithful investing in the selected whole diversified asset classes — fi360 is not only encouraging bad advice but presenting it dishonestly.

    The FP community better look under the blanket of pious “fiduciary” talk covering this kind of malpractice, and fix it — before it’s exposed as a headlines scandal.

    Dick Purcell

  5. David F. Sterling, Esq.
    David F. Sterling, Esq. November 20, 06:56

    Mr. Carosa:

    What I continue to find so intriguing about this discussion is the “role and function” of perception as it relates to achieving status or even credibility in the the advisory world. What is increasingly evident is that “verifiable expertise” is taking a back seat to its “appearance.” Consider the following example of particular relevance to the “demographics” impacting the scope and delivery of investment advisory services. I have had this discussion with Mr. Trone on several occasions.

    Clients from various financial strata and means hold their investment and financial resources in various legal and tax entities. Trusts are a good example of this. Yet, little mention is made of the investment advisor’s duty to design and manage trust portfolios that are compatible and align with the drafting provisions, common law and statutory guidelines regarding trust management and governance.

    I tend to agree with Mr. Purcell’s observations regarding the “fiduciary rhetoric” as it MAY APPLY to those who often possess minimal knowledge about or direct experience with the complexities and challenges of skillful trust management. There is an important distinction to be made between knowing “about” something and knowing “how” to make something work.

    It seems that the BREADTH of the “blanket of pious fiduciary talk” has spread thin and far outdistances its DEPTH. I submit that the time is long past due for those who have saddled up on their “high horses” to pull in the reins and return to the basic foundations of investment advisory counsel embodied in the Investment Advisory Act.

    An even more dramatic but related example may be found within the confines of the CFP curriculum and certification process. The curricular content is exemplary, but the underlying presumption that one would allege or consider themselves qualified to be held to a “fiduciary standard” of care when rendering guidance on each of the curricular components is absurd and simply arrogant. I know of few attorneys who would dare step out on such a broad “regulatory and liability plank.”

    As a licensed attorney and insurance/investment professional with considerable past administrative and investment experience as a trust officer and trust office manager, I consider myself “somewhat” qualified to address these considerations.


    David F. Sterling, Esq., Consultant

  6. Dennis Myhre
    Dennis Myhre November 25, 19:07


    Mr. Purcell commented that “fi360 is not only encouraging bad advice but presenting it dishonestly.” He may have overlooked Mr. Trones statement that he “left fi360 in 2007 when the local, former investors in fi360 and I had significant differences in the direction of the company, and in the values upon which I built the company.” I submit that Mr. Trone is not responsible for the actions of a company he left almost a decade ago.

    This was a great interview…. the most important statement Trone made was that “As fiduciaries we need to remember that much of what passes as being legal and compliant is not always ethical.” I could refer you to a host of Advisory Opinions issued by the DOL including 2013-03A regarding revenue sharing payments received by service providers.

    Dennis Myhre

  7. Dennis Myhre
    Dennis Myhre November 28, 10:39


    While on the topic of fiduciary responsiblities and ethics, I found a video link on Vimeo that basically “tells all” as it relates to the credit meltdown in 2008. It explains how risk complacency contributed to the collapse, it’s cause, and how the use of Shadow Banking and off-balance sheet accounting was used to crank out credit solutions. How lack of transparency made it difficult for anybody to understand, and finally, and most importantly, how the use of private capital from sources like pension funds were needed to help with the process of deleveraging.

    Dennis Myhre

  8. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author November 28, 11:26

    Dennis, thanks for the additional comment. I had to remove the video link because it’s too long for us to review. Our editorial policy is to try to review all links posted on the site.

  9. Dennis Myhre
    Dennis Myhre November 28, 11:33

    Thanks Chris….. I understand.


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