Our practice of index based investing is consistent with what we know about how free and fair markets function. Furthermore, index based investing is supported by the results of scores of empirical studies from fifty years of professionally managed portfolios. Active management is not. Index based investing also allows for more reliable planning and implementing of portfolio strategies. It is demonstrably successful and we believe the most prudent way to invest a client's money.
According to the Center for Fiduciary Studies fiduciary liability is not determined by investment performance but by whether a prudent process was followed. It’s not whether you win or lose, its how you play the game. The Center for Fiduciary Studies states that there are seven (7) Uniform Fiduciary Standards of Care that must be adhered to. Those standards are as follows:
1) Know standards, laws and trust provisions
2) Diversify assets to specific risk/return profile of client.
3) Prepare investment policy statement
4) Use “prudent experts” (money managers) and document due diligence
5) Control and account for investment expenses
6) Monitor the activities of “prudent experts.”
7) Avoid conflicts of interest and prohibited transactions.
It is important that an investment process be in place to ensure that each of these standards is adhered to. Harrington Wealth Management’s investment process (depicted below) does just that. Each or our clients has a written investment policy statements that details the risk tolerance, investment return objectives, liquidity needs (spending policy), portfolio constraints and tax situation. This investment policy should be reviewed at least annually to make sure that the investment policy remains accurate.
