Fiduciary

"Fiduciary is used commonly in the investment management setting, referring to somebody who's a trustee with responsibility for a will or an estate," explains Josh Lerner, professor of business administration at Harvard University in Cambridge, Mass.

For example, when a pension fund holds money, it's holding it as a fiduciary for the individual retiree, he says.

In general, fiduciary refers to a set of responsibilities a company has and not those of a single person, such as a chief fiduciary officer, according to analysts.

"The whole organization has such a responsibility, and it's not the kind of thing you can break down into a part of an organization," Lerner adds.

Avivah Litan, analyst at Gartner Inc.A company's fiduciary responsibility is borne by its top managers, who must ensure that brokers, advisers, financial managers and others "keep a customer's financial goals and well-being in mind," says Larry Tabb, an analyst at TowerGroup in Needham, Mass.

Those duties include making sure customers' assets are invested in accordance with legal guidelines and ensuring that an account is opened properly.

These activities are often entrusted to automated systems, which are governed by IT shops.

Because fiduciary responsibility can be viewed in broad terms, it extends beyond customer-facing employees and includes IT managers and personnel.

Examples of a Fiduciary at Work:
  • A stockbroker holds a fiduciary duty to his clients to make sure orders are processed properly and that terms of trades are clear and within legal limits.
  • A business manager at an insurance company exercises fiduciary duties that stretch beyond processing bills and receipts to helping set policies that protect his investors and those insured.
  • An IT manager is a fiduciary in the broadest sense, even when setting up software and hardware systems to run efficiently and consistently. These actions not only protect customers, they also guard the financial well-being of employees and investors.
  • Matt Hamblen
    "To the extent that IT builds technology that doesn't serve the client or doesn't work properly or account for things appropriately, it can damage the trust and fiduciary role between a company and client," Tabb says.

    Beyond the realm of financial institutions, IT managers act as fiduciaries for their companies' customers and investors as they try to reduce costs and increase revenues, says Avivah Litan, an analyst at Gartner Inc. Conn.

    "With the Internet bubble bursting, IT managers at companies are turning from a focus on outward-bound projects, where there might be no (financial) return and (are) instead asking questions such as, 'Can you really use these new network technologies to cut costs?' " Litan says.

    The GE Way

    Fiduciary responsibility can also apply to how effectively a company applies IT, Litan explains. For example, she has been tracking how General Electric Co. has leveraged electronic bill payments to generate $2 billion in annual cost savings.

    GE has enticed 15,000 of its suppliers to use its electronic invoicing and payment system, thus helping GE to avoid the costly process of managing paper checks. The suppliers are paid within 15 days, instead of several weeks, from the time they submit their invoices, which translates into a 1.5% discount for GE on each invoice. That has resulted in a 12% savings on annual invoice payments, or $2 billion, Litan says.

    "GE is a good example of how companies need to focus on productivity gains and ROI," Litan adds. "If I was an IT manager, my fiduciary responsibility to my company would be to tell staff, 'If you want to buy technology, it better improve the bottom line.' " Still, many companies don't seem to have kept their fiduciary responsibilities in mind when they set up their customer relationship management (CRM) software systems, according to Litan. "A lot of companies are just dissecting customers' tastes and preferences with CRM, but after the companies get that information, it turns out the customers just don't want to buy any more from you," she says.

    Many dot-coms fizzled because they failed to focus on their fiduciary duties, Litan says. But there are a lot of dot-coms that have focused on their fiduciary roles that will thrive, she says, just as a few large automobile manufacturers survived among the plethora that emerged when cars were first invented.

    Litan concludes that a fiduciary in an IT operation is "somebody who spends money on IT projects that save money rather than promising nebulous returns."

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