The fiduciary duty to protect: the forgotten duty in pension fund investment

The fiduciary duty to protect: the forgotten duty in pension fund investment
 
Jay Youngdahl

In the context of the global crisis in retirement security, this article examines the failure of those who oversee investments in the pension and superannuation industry to protect the best interests of beneficiaries and participants. Given the existing institutional corruption in the industry and the failures of governmental regulation, the inability or unwillingness of those in finance to act appropriately have contributed to the present era of austerity and inequality. In response, the author identifies a tool that the trustees who govern these funds can use to put an end to their harmful and often ineffective financial activity in which they are drawn: the fiduciary duty to protect. A fiduciary duty is an obligation to act in the best interest of another party that places certain duties on those to whom it applies. While fiduciary relationships appear in many legal contexts, this paper focuses on two fiduciary relationships that are present in the global pension fund industry. The first fiduciary duty applies to those in whom basic governance over fund assets and actions resides, often called fund trustees. The second fiduciary relationship concerns those people who are employed by the funds, often called investment consultants. Trustees need guides and protectors in their investments. Given the lack of efficacy of public-sector oversight in most situations, these guides must come from the private sector. Unfortunately this group has in the main forsaken its role as protectors of trustees and beneficiaries. Those who play such a role must embrace a duty to protect. To ensure that this fiduciary duty is properly followed by all to whom it applies, benefit fund trustees must require that the professionals they employ embrace it. Ultimately as well, trustees must take more seriously their duty to protect, since their role includes the most fundamental fiduciary duties, and they possess the ability to hire and fire financial professionals.

Source: Law and Financial Markets Review, Volume 8, Number 3, September 2014, pp. 241-248(8)

http://dx.doi.org/10.5235/17521440.8.3.241

Originally Published: 
30/09/2014