A good fiduciary shouldn’t push the envelope – Carosa

“But soon, every fighter jock, rocket ace, and rat-racer in the country… will be headed this way, wanting to push the outside of the envelope…” The Right Stuff, 1983

If you ever saw this movie or read the book by Tom Wolfe, you can’t help but admire the men who so willingly put their lives at risk in the name of science, exploration, and their country. They truly had “the right stuff.” Among their remarkable traits was the uncanny desire – if not the ability – to “push the outside of the envelope.”

The term, which has its roots in the mathematics of functions, literally means to go outside the defined boundaries or limits. In the context of test pilots, it meant to take a risk, or – and to borrow a phrase from yet another iconic Hollywood creation – “to boldly go where no man has gone before.” (OK, all you literature majors out there, I know the earliest use of this phrase comes from H. P. Lovecraft’s mid-twentieth century novella The Dream-Quest of Unknown Kadath, “to go with bold entreaty whither no man had gone before.”)

As much as the Mercury Seven might stand as role models for many things, their daring-do represents the antithesis of what we’d expect from a good fiduciary (see “Ongoing Debate: When (If Ever) Can a Fiduciary Legally Engage in Self-Dealing?,” FiduciaryNews.com, July 10, 2018).

There’s a reason why Hollywood tends to vilify bank trust officers: they’re boring. And I’m not merely referencing a character trait. It’s a job requirement.

Trustees cannot take risks with the finances of the beneficiaries they serve. This has been a long-going expectation of the position since the Magna Carta hammered out the first modern definition of fiduciary duty. This may also be the reason why, a century or more ago, it was illegal to hold stocks in trust portfolios. It was all bonds or the pokey for trustees. And jail time never looks good on the resume if you want to pursue a career as a trustee.

Read: We have reached the moment of truth for ‘fiduciary’

We can’t stop there, though. This “always act in the best interest of the beneficiary” directive goes well behind the fiduciary not hurting the beneficiary. It also demands the trustee prevent the beneficiary from doing self-inflicted damage.

Now, in the case of a trustee watching over a child, this can literally mean taking over the child’s life. Most of the folks reading these pages, though, will find their trustee duties strictly limited to financial matters, and usually just to investments. This doesn’t alleviate the requirement to intervene.

If you act as a fiduciary over an investment portfolio, and the beneficiary of that portfolio orders you to make an inappropriate investment, what should you do? Believe it or not, you can’t use the “I was just following orders” or “the client is always right” excuse. Nope. The buck stops with you.

You, as fiduciary, have full and ultimate responsibility for the portfolio. It’s your neck on the line. If you opt to follow the direction of the client, you’ve exposed yourself to a fiduciary liability that, ironically, that same client can later use against you.

As bad as this sounds (and it will sound like a firing offense if you work for a firm you don’t own), you’re left with only two options when a client requests you act in a way that violates your fiduciary sense. You can either successfully convince the client against such a move. Or you can quit the client.

If you can’t accomplish the first option you’ve got no other move than to exercise the second option. And, if your boss doesn’t like it, you may need to question if you’re working for the right boss.