If you volunteered to serve on the board of your local Credit Union and secured a seat on the investment committee, you may initially have reservations about your new appointment – but if you have a keen interest in the financial world, some investments of your own, you’re a business person and you read the Financial Times, you may feel that you’re qualified.

This may be a great way to attend investment committee meetings and receive the latest investment research from your investment advisor, but the job shouldn’t be taken lightly.

Being a fiduciary comes with a certain level of responsibility. An investment fiduciary is any person who has the legal responsibility for managing somebody else’s money. What this really means is that you have been placed in a position of trust and there may be consequences for betrayal of that trust.

As a member of the investment committee, you may share some of the responsibility with the investment advisor. If the advisor is a Qualified Financial Advisor, he or she may share fiduciary responsibility with the investment committee. Some brokerage firms don’t want or allow their advisors to be fiduciaries, so it is important to ask the advisor. Ultimately, it is the advisor’s actions that determine whether he or she is a fiduciary. Giving continuous, comprehensive advice is considered acting in a fiduciary role, while simply selling products is not.

Engaging an advisor who is willing to accept fiduciary responsibility is desirable because committee members can reduce their liability by delegating some of their responsibilities to an expert. However, hiring an expert does not relieve the committee members of all their duties. They still have an obligation to prudently select and monitor the activities of the expert.

A fiduciary’s main responsibility is to manage a prudent investment process and a fiduciary demonstrates prudence by the process through which investment decisions are managed.
By proper execution of a prudent investment process, trustees and investment committee members can reduce their liability by being confident that they are fulfilling their fiduciary responsibilities.