Your organization

Are you an attorney, CPA, or a global consulting/insurance firm?

We offer access to our Diogenes Fiduciary Compliance System (DFCS™) to select advisers on a private label basis so that they may provide fiduciary monitoring tools for their “down range” clients. As noted in the Tibble v. Edison International case (SCOTUS Docket 13550 – May 18, 2015), fiduciaries can be held liable for failing to continuously monitor their investments. Our DFCS™ helps meet this monitoring requirement by documenting an organization’s ongoing fiduciary  process.

The cost of the use of the  software is based on an annual subscription per end user which is split between Diogenes and the adviser, thus providing a recurring income stream for the adviser.  In addition, we will consider providing geographic exclusivity to help the adviser differentiate its offerings from others in an every increasingly competitive market.


Are you a nonprofit?

Orphanage loses half of its endowment. In 2007 the Hillcrest Children’s Center, the oldest, continually operated orphanage in the US was entering its 192nd year. One of the board members recommended a good friend to manage the endowment. Following a  brief presentation by the prospective manager, the Board hired the investment firm. Within 18 months, the manager had disappeared with half of the endowment resulting in reduced services to their current clients and postponement of plans to expand their facilities.

What happened here? The board relied on the reference of their colleague and failed to follow a proper due diligence process. (Selection S-3.3.1: Reasonable criteria are identified for each due diligence process used to select service providers).

The Global Fiduciary Standard of Excellence provides a set of qualitative and quantitative guidelines for the selection of outside vendors. If the board had been using our fiduciary compliance system, the approriate person would have been alerted to the issue and Hillcrest may not have suffered the loss.

Donors are increasingly demanding evidence of proper stewardship when selecting the beneficiaries of their magnanimity. Being able to demonstrate good fiduciary procedures can also make a difference in fund raising and should be an integral part of the strategic planning process. A recent study of nonprofits in New York State showed that  nonprofits that are able to clearly demonstrate conformance to a high degree of fiduciary standard gained, on average, 13.5% more in donations.

Do you oversee a retirement fund?

Large US Insurer fined $140m. After thirteen years of litigation, the Nationwide Insurance Company was fined $140m for breach of Fiduciary Duty under ERISA. The plaintiffs, who were trustees of five employer-sponsored defined contribution plans, alleged Nationwide’s revenue-sharing agreements with third-party, non-propriety mutual fund companies resulted in losses to the plans and breached Nationwide’s fiduciary duties under ERISA.

The Nationwide fine is the largest one so far, eclipsing the $35.2m fine in Tussey v. ABB case. Following the Global Fiduciary Standard of Excellence would have helped prevent such liability, for under Section S-4.4.3, the Plan Trustees must demonstrate that “periodic reviews are conducted to ensure that investment-related fees, compensation, and expenses are fair and reasonable for the services provided.”

Are you a US subsidiary of a multinational headquartered outside of the US?

Zurich based multinational fined $35.2m. Like the Nationwide case,  Switzerland-based ABB faced issues related to the oversight of the professional expenses for their US retirement plans. In this case, the court held in 2012 that the plan trustees:

  1. Failed to monitor record keeping costs paid through revenue sharing and hard dollars, and to negotiate rebates for the plans; (Practice 4.4.3: Fees, compensation, and expenses paid from plan or trust assets are periodically reviewed to ensure such costs are fair and reasonable based upon the services rendered and the size and complexity of the portfolio or Plan)
  2. Failed to prudently deliberate prior to deselecting and replacing investment options in the 401(k) line-up; (Section S-3.3.2: Decisions regarding the selection of investments consider both qualitative and quantitative criteria.)
  3. Selected more expensive share classes for the plans’ investment line-up when less expense share classes were available. (PracticeS-3.3.7: Decisions regarding the use of separately managed and commingled accounts, such as mutual funds, unit trusts, exchange-traded products, and limited partnerships, are documented and made in accordance with obligations of care.)
  4. Permitted revenue sharing for the purpose of subsidizing corporate expenses unrelated to the administration of the 401(k) plans from which the revenue sharing was generated. (Practice 4.4.3: Fees, compensation, and expenses paid from plan or trust assets are periodically reviewed to ensure such costs are fair and reasonable based upon the services rendered and the size and complexity of the portfolio or plan.)

The resulting fine was $35.2m.

US Subsidiaries are especially vulnerable to fiduciary breaches due to a lack of familiarity with US law for it is difficult enough for a US manager to understand ERISA. Many do not know that standard Directors and Officers Liability Insurance does not cover breaches of fiduciary duty, meaning that directors and trustees can be held individually liable for any monetary damages. As the ABB example shows, even the largest multinational may not be in compliance. Complying to the best practices and the underlying criteria of fi360’s Global Fiduciary Standard of Excellence (reflecting the protocols of ISO 19011:2002) can significantly reduce fiduciary liability. Teams of accountants and lawyers can only go so far in protecting the company, its officers, and its directors.  Included in our services are ongoing briefings and education seminars for board members and staff. We coordinate with our clients’ other advisors and access to our Diogenes Fiduciary Compliance System™(DFCS™) provides a window on the status of conformance regardless of geographical location.