The FQMS stresses a process-driven approach and the concept of continual improvement, two principles that go hand-in-hand with carrying out responsibilities to a retirement plan or for an IRA client.
Implementing a Fiduciary Process
There are four major steps that comprise the FQMS:
Step one is all about collecting the information necessary for making investment decisions on behalf of a plan and building awareness among the decision-makers. This step includes knowing and following the rules, such as those found in ERISA and in plan documents; making sure everyone involved in the plan understands and acknowledges their roles, including the scope of their involvement and whether or not they have a fiduciary duty to the plan; avoiding conflicts of interest, such as those transactions specifically prohibited by ERISA; and ensuring the proper protections are in place for protecting plan assets and data from fraud and embezzlement.
Continuing our look at the Fiduciary Quality Management System, the second step of the fiduciary process is Formalize. In this step, all of the information that was gathered in Step 1: Organize is analyzed and built upon to formulate the investment strategy for the plan. Key to this step are understanding the relative importance of the factors that go into arriving at the best investment options and documenting the strategy into a formal document called the investment policy statement.
The third step of the Fiduciary Quality Management System is to implement the investment strategy. The easiest way to describe this step is that it is the due diligence phase. Armed with the investment strategy you’ve helped build for the plan based on the data you’ve gathered and analyzed, now you can go through the process of seeing that strategy through by engaging service providers and making securities selections.
Step 4 is probably the most labor intensive, time consuming, and important component of the Fiduciary Quality Management System. It requires responding to changing conditions while maintaining the highest level of fiduciary governance.