Article: State Attorneys General must Correct Investor Fiduciary Duty Guidance

Public debate about investor fiduciary duties over the past few years has become polarized and inaccurate. Commentators in the culture wars often ignore established fiduciary duty principles and fail to recognize nuances of the duties they do address.  As a result, many public fund fiduciaries and their advisors have been left with inconsistent legal narratives for guidance. While state attorneys general have weighed in, they have also missed established principles regarding application of investor fiduciary duties. Those overlooked duties and how they relate to evolving investment risk management practices are material to providing public fund fiduciaries advised by the attorneys general with accurate advice.

This article provides an overview of the fiduciary duty principles being missed by both sides in the culture wars, highlighting insights from the Handbook of System-Level Investing. The missing principles – the evolving nature of the duty of prudence, the duty to investigate all facts related to investment decision-making, and the impartiality mandate of the duty of loyalty – are fundamental for an up-to-date legal analysis of investor fiduciary practices. In particular, fiduciaries should evaluate emerging system-level investment practices for risk management and performance improvement opportunities that are relevant to their funds.