By Deb Castellani, CFA and Bill Conrad, JD October 8, 2019
The word “fiduciary” use to be used almost exclusively by industry insiders and lawyers. Today, it its used in headlines, articles, the internet, marketing and general conversation. Because of the Department of Labor’s Conflict of Interest (aka Fiduciary Rule) and the SEC’s BI Rule, the word “fiduciary” is now much more commonplace for plan sponsors and service providers.
It has also created a great marketing advantage for compliance-minded service providers.
Study after study shows that plan sponsors want and need assistance with their fiduciary duties. We know this first-hand training plan sponsors on fiduciary duties and helping them assess how they are doing with their fiduciary responsibilities. They are often surprised by their duties and grateful to learn what they need to do in order to be in compliance. With the right providers, learning they are the ultimate fiduciary is can be a little scary, but its also empowering when introduced to it by plan sponsor who cares and understands ERISA.
Study after study shows, plan sponsors WANT the training and tools to help them be in compliance and to low their fiduciary risk.
- 37% Are Concerned About Fiduciary Duties1
- 70% Want Regulatory & Compliance Follow-Thru2
- 98% Want to Minimize Their Fiduciary Risk3
Ask any retirement plan service provider and they will tell you plan sponsors need the training and tools. A recent study showed that 43% of plan sponsors are unaware they are fiduciaries. A 2016 study by Alliance Bernstein stated 61% of Investment Committee and 78% of Administrative Committee members DID NOT know they were fiduciaries.
Yes, ERISA is complicated. It covers hundreds of pages and includes at least three regulators, more if you consider the SEC and FINRA. Service providers are in a perfect place to help them----well only compliance-minded service providers and those that understand ERISA.
Everyone in the industry has heard at least one or two non-compliance minded service providers talk about how "easy" §401(k)s are and how much money can be made, but the reality is, if done correctly, it’s not easy and it takes a lot of skill. Plan sponsors deserve providers who understand this industry.
Many plan sponsors think that when they hire a service provider their own fiduciary liability is reduced. It can be if the right providers are hired, then again, it can be increased if the wrong providers are hired. I heard one Third Party Administrator tell a plan sponsor that if they hired him, 75% of plan sponsor’s liability went away. Still can't figure this out, but, unfortunately, providers like this exist and plan sponsors don't know any better.
With the right tools and training, compliance-minded service providers can begin to educate prospects, turn them into educated fiduciaries and help prevent the “sales” -minded service providers who lack ERISA knowledge from getting the business. This is a huge win-win for the the plan sponsors and the participants.
A compliance-minded investment provider client of ours who we were helping to increase their business, brought us in on a sales call for a client who had indicated their firm was likely moving elsewhere. Without talking about fees, investments or §3(21)/3(38) status, the deal was closed just talking about fiduciary duties and finding the right providers. We answered questions not asked, but the plan sponsor needed to hear and wanted to understand.
Compliance-minded service providers help provide training, tools such as templates and can provide structure for the plan sponsor in conducting their duties. All of this can be done with the appropriate disclosures and disclaimers, but when a plan sponsor is in fiduciary compliance it also helps protect the service providers and the participants and becomes a win-win-win situation for all involved.
1 Eighth Annual Fidelity Plan Sponsor Survey - 2017
2 2017 Wells Fargo
3 2018 Retirement Trends Report, Vestwell
Other Compliance-Minded Articles
The views expressed represent the opinions of Akros Fiduciary Management and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial, or legal advice or service to any person.
Additional information, including management fees and expenses, is provided on Akros's Form ADV Part 2, which is available upon request.
Please contact us.