Kristina Fausti, a native of Beaver County, spent the last five years as a special counsel with the U.S. Securities and Exchange Commission in Washington, D.C., where she focused on regulations guiding investment brokers and dealers. As an SEC attorney, she observed "failure at different points" in housing, credit and securities markets that eventually resulted in the global financial collapse. She brings her insight into the regulatory process to a new role at Fiduciary360, a Sewickley firm that offers training and certification to investment professionals.

Q: What does Fiduciary360 do?

A: Our mission is to promote a culture of fiduciary responsibility. The other piece of that mission is helping investment professionals make better decisions and provide better advice. You could call us at our base a training and education organization ... to help identify who a fiduciary is and what [the] responsibilities are.

Q: How do you define fiduciary?

A: That's a term that's being thrown out a lot. Our basis for a fiduciary is what we believe has been the law for a long time: a person who holds a relationship of trust. Therefore, [the fiduciary owes] a duty of loyalty and due care. That means always putting the interest of the client first.

So if you are an investment adviser to an individual investor, that investor's interest comes before your own. If a conflict of interest comes up, you do whatever you can to mitigate or eliminate that, and if you can't, you let the investor know that conflict of interest exists.

Q: What training does your company provide that fiduciaries don't receive from their own brokerages or investment firms?

A: We developed prudent practices that define how you can be a good fiduciary all the way from making sure you're in compliance with applicable laws to what's the actual process for making good investment decisions. We've created two designations. One is accredited investment fiduciary (AIF) and the other is accredited investment fiduciary analyst (AIFA). We have around 3,000 AIFs and 500 AIFAs, and we're constantly growing.

Q: Given the events of recent months, are investors more skittish?

A: We're getting to a point where people aren't willing to take the risk anymore. Ultimately, everyone wants to make money, and we keep taking more and more risk in the types of products we're offering. Those [subprime mortgage] loans were a huge risk, right?

But where there's large risk, there's large reward. The focus usually tends to be on great reward and payoff, and not enough focus on what's the downside. And when the downside comes, here we all are feeling the effects of that. The sad thing that's going on is people want to see the economy rebound, and they're so risk-averse.

Q: Doesn't it make sense investors are avoiding risk after the economic collapse and the scandal surrounding Bernard Madoff's $50 billion Ponzi scheme?

A: I just came from the SEC and I see folks that do catch the really bad Ponzi schemes on a daily basis .... I take a jaded view because unfortunately, being inside the SEC, seeing the types of enforcement cases I provided legal guidance on, I saw wrongdoing like that all the time.

Unfortunately, there's going to be fraud out there. There are going to be unscrupulous people who have their own vision on what's a good way to make money without taking into account who they are hurting. I saw many cases where we held those people accountable and could make investors whole again.

But there are going to be cases like Madoff where it's so huge .... He knew right from wrong. I think there are a lot of doubts about whether he was acting on his own because how do you do a fraud that large for that long on your own?

Q: Could more government regulation have prevented the events that sent the economy into a tailspin?

A: I have been thinking about what the ideal regulatory structure looks like. If you take it from there, you could ask where did we not necessarily fail but miss the boat? What does regulation need to achieve? Investor protection and stability of the financial institutions. Those goals need to be prioritized and we need to be constantly watching those goals.

Once you have that, you need to get into the actual regulations and what are they doing. The big issue we've always had is a lot of reactive regulation. That's needed. But we need to be as proactive as reactive. What comprehensive regulation should be doing is identifying risks. And are risks changing?

Within the regulatory structure we have so many different agencies regulating so many different things .... We need to identify whose role is what. We have a lot of agencies and statutes, and sometimes it gets muddled. There are holes, and there is overlap; and overlap causes turf wars, or you just don't know who's in charge.

The recent financial collapse is interesting because it goes across such a broad spectrum. You had the housing markets, then the credit markets, then the securities markets, so a domino effect happened. ... No one was taking a broad overview of the risks.

Q: Many observers trace the unraveling of the economy to subprime mortgage loans. Should they have been regulated?

A: I think you potentially had failures at different points. At some point when those loans were given, obviously there were issues associated with whether the people who got those loans should get them. Who was there to stop the predatory lenders?

That spilled into all those loans being packaged together and split into securities .... In the securities world we're constantly seeing new products crop up and new services. Looking at these new products, you have to ask do we have enough to go in and regulate them, and do we need to regulate them, and who's really watching what's going on.

Q: So you can't connect the economic collapse to a single event?

A: I'm a lawyer. I'm not an economist, and I'm not myself a financial adviser. I was in the regulatory world, so I'm not going to pinpoint one thing.

I do think there's collective responsibility here. I think regulators need to have the authority to regulate but also need accountability. Obviously we failed all those individuals across the country ....

I saw some finger-pointing by people on the credit side pointing at the securities world and people in the securities world pointing fingers at the credit markets and banks. We don't want finger-pointing. We want someone who knows what's going on and saying what's the right approach, and someone watching the overall effect.

Q: What can investors take away from the experience of watching the downturn?

A: What I hope investors will learn is if it sounds too good to be true, it just might be. So ask some more questions. If you're not sure what questions to ask, don't be afraid to ask your friends and family. An investor, the everyday person, isn't necessarily educated on the issues [he or she needs] to be. They don't necessarily know what goes on in Washington, D.C., on a day-to-day basis, how regulatory decisions get made, what are the laws, what are their rights and remedies, and how they can protect themselves.

You know, when you're doing an investment, it's like everything else. When you're buying a house, you don't just let the Realtor say, "Hey. This is a really great house." Or when you're buying a car, you don't just let the salesman say, "This is a really great car." You go back and do some research. You ask your friends.

Securities products are kind of the same. Certainly if you have an investment professional, you ask these types of questions and push them on it. How long has this product been around? What truly is its performance? Really think about it and don't just take someone's word for it.

Q: Why did you give up a job in Washington, D.C., to return to Western Pennsylvania?

A: The easy answer is that it's home. My heart has always been here. At the time I [finished graduate school], I had worked in both Pittsburgh and Washington and thought D.C. was a good place to start my career.

But I always had close contacts here. I'm a huge Steelers fan. I always go to training camp and at least two games a year. My family has a small farm in Conway, and I always came home in the summer and fall to work on the farm and go to farmers' markets. That was a nice break from the office environment in D.C. There's a comfort level I have here.