By Deb Castellani, CFA and Bill Conrad, JD - October 23, 2019
Compliance-minded investment providers are in a unique position to help educate plan sponsors. Being a fiduciary or not doesn't matter. What matters is understanding the principles of being a good advisor or adviser and understanding and appreciating compliance because the basics of both adhere to plan sponsors.
Registered Investment advisors, investment fiduciaries, understand firsthand the responsibility that’s required by a plan sponsor. All investment providers, however, have regulators and know the importance of things such as the needs for books and records, documentation, processes and oversight because of their regulatory requirements. Most other service providers don't have any regulatory oversight and most are not fiduciaries, so they don't truly understand the responsibilities and pressures of a plan sponsor.
"I Don' t Have to Worry...They Do Everything For Me"
Even though most service providers are not fiduciaries, amazingly, the majority of plan sponsors feel their service providers take on a fiduciary role with their plans. Literally, surprisingly, scarily, we have been told too often by plan sponsors they were told this by the service providers. They say “I don’t have to worry about any of this, my __________(fill in the blank with TPA, Investment Provider, Recordkeeper, …) does all of this for me. “
We find it even more surprising when we talk to NON-compliance-oriented providers and they tell us they “reduce the fiduciary liability for the plan sponsor”, yet their contracts state they are NOT fiduciaries. The plan sponsors are hearing the sales pitch words that sound like they are hiring a fiduciary and not paying attention to the contracts and the reality of who is and who is not a fiduciary.
Because of these types of conversations and the lack of fiduciary education for plan sponsors, they don't realize that they HAVE to keep their OWN minutes, make their OWN decisions, perform their OWN oversight of providers, have processes in place and document how and why they made decisions that affect the plan and their participants. In addition to running their own business, the plan sponsor is really running an investment company for the benefit of it plan participants (employees).
How You Can Help
Compliance-minded investment providers can help support plan sponsors in many ways and can do it without creating compliance issues inside their own firms. Think of talking to a plan sponsor about these types of issues like talking to a plan participant about investments. The advice should be educational (aka general) and document what you tell the plan sponsor.
You can help plan sponsors with the following 3 things:
- Being a Fiduciary - Explaining the importance of what the plan sponsor does and what it means to be a fiduciary. Whether a fiduciary advisor or not, investment professionals understand the importance and meaning of this and can help the plan sponsor understand.
- Oversight - Investment providers understand the need to hire sub-advisors, mutual funds, wrap programs and others to help them invest for their clients. Just as you have to review these providers helping you, so do plan sponsors have to review their own providers and document those reviews.
- Documentation of Policy, Procedures, Processes, and Decisions – As all investment providers know, the need for documentation is required by regulators and lawyers. This documentation is for policies, procedures, processes, and decisions to help show the investment professionals are adhering to your professional duties. The same is true for a plan sponsor.
For the investment provider to do this, they just need to make sure they document and disclose properly with their client. For example, an investment advisor client of ours was going to meetings and taking minutes, while the plan sponsor was not. We suggested providing the minutes to the plan sponsors with proper disclosures or disclaimers and a little fiduciary education. It was a win-win situation. The client had their meeting documented and the investment advisor could help their client stay in DOL compliance while still being in SEC compliance.
A compliance-minded provider can also help their clients stay in fiduciary compliance by providing them with third-party articles, whitepapers, and webinars, bringing in a qualified plan consultant or letting them use a §401(k) plan sponsor fiduciary checklist like The FIRE System that gives them independent review, training, and an action plan to correct and understand their duties and how much you do for them. Helping them mitigate their fiduciary risk, helps all service providers to mitigate their risk and builds better relationships.
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