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Investment risk in fiduciary management, applying the Swiss Cheese Model

Who, or what is to blame? This is often the first question that comes to mind when a mistake or failure occurs. However, complex problems rarely have asimplistic and singular root cause – it is more likely to be the alignment of a number of smaller errors, occurring in parallel, that has led to the accident.

This theory of accident causation is the basis for the “Swiss Cheese Model”, a principle which illustrates how accidents can occur from various weaknesses in a defensive system lining up.

Fiduciary managers set up several layers of defence to protect client portfolios from errors occurring. In this paper we consider how the Swiss Cheese Model can be applied to the Fiduciary Management (“FM”) proposition and used as a framework to evaluate risks. We discuss the various tools which trustees can use to apply this analysis and identify any areas of weakness within their fiduciary arrangement.

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