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If you think you’re a great fiduciary, don’t be the last to find out that you’re not.
In 2021, what:
- Behavioral strengths will you need to double-down on – shortfalls you’ll need to work on – in order to improve the quality of your fiduciary governance?
- Will be your greatest opportunities – and your greatest risks?
- Additional resources, technology, and staff will you need in order to improve the quality of your procedural prudence?
These are just a sampling of questions to help illustrate the practice of red teaming.
Simply defined, red teaming is the process of challenging an organization’s assumptions, plans, policies, and strategies. The military has been using this process for decades; some applications for centuries. Today, red teaming is being implemented across nearly every industry sector and domain.
This deliberately confrontational approach is designed to correct cognitive errors, limitations, or biases that may be impairing the quality of your decision-making process. Its greatest value will be revealed when previously unknown risks and opportunities are brought to light.
For the financial services industry, fiduciary audits are okay, but red teaming is better. The problem with most audits is that the process tends to be binary:
Auditor: Did you prepare an IPS for this fiduciary client?
Fiduciary advisor: Yep.
Auditor: Check.
This typical challenge and response doesn’t adequately reveal whether a financial advisor has a good understanding of the purpose of an IPS, or that the IPS is appropriate or effective. Perhaps the advisor downloaded a template and filled in the blanks without giving regard to the client’s unique facts and circumstances. Or, maybe the advisor prepared the IPS years ago but has never completed an annual assessment with the client to determine whether it’s still current.
In early 2021, a new Public Benefit Corporation will begin to board certify fiduciary advisors and consultants. Candidates for certification will start by undergoing an assessment, the results of which will be used to create a unique developmental plan for the applicant. Once the prescribed training has been completed, the candidate can elect to appear before a panel of three fiduciary experts who will be using red teaming techniques to examine the candidate’s leadership, stewardship, knowledge, skills, and best practices.
Are you curious to see how you might measure up to such a process? If so, start by filling in the empty cells of this matrix:
Not so easy, is it? Filling in the matrix is just the start of the red teaming process.
Once the opposing red team members (subject matter experts) have been provided with a copy of your completed matrix, they’ll begin to test the depth of your understanding of its contents. They’ll look to identify the strengths and shortfalls of your decision-making process, and highlight your risks and opportunities.
Red teaming is not for the faint of heart. You’re likely to struggle with the process unless you have a well-defined sense of purpose, a sound governance process, and you’re passionate about becoming a better professional.
Yet, red teaming will help to identify the actions necessary to improve your practice’s overall strength and resilience. If you do survive red teaming and the rigorous board certification process, you’ll stand out as a leader and steward in the financial services industry.
Acknowledgement: The author wishes to credit the nudging and guidance of Dr. Sean Hannah, a chaired management professor at Wake Forest University, and one of the Co-founders of 3ethos. Sean also is a retired U.S. Army Infantry Colonel who learned fist-hand the value of red teaming during the First Gulf War, and other operations. It was Sean who suggested that I explore the possible application of red teaming to the fiduciary movement.
Related: 3 Fiduciary Modes: Know How to Evolve From Good to Great