Chances are that your plan’s broker is not a co-fiduciary. In fact, a broker only becomes a fiduciary by accident. They probably don’t specialize in retirement plans. While they may have given you invest recommendations, they are not at risk for them. You are. However you don’t have to go without help from a professional fiduciary.
No Co-Fiduciary Help
Some plan sponsors choose to go direct with their record keeper. In that case they don’t officially have an advisor. Some firms offer an account representative but that person is not working in the capacity of a broker. In fact that account representative works for the recordkeeper who also may provide investments. If your account representative or broker, and your investment company and your record keeper share the same brand-name there may be a conflict of interest. And you are the one left responsible for monitoring that those conflicts of interest don’t hurt your participants. You may work with someone that handles your personal investments and choose to have them help you with your retirement plan. As a retirement plan means that you are now responsible for other people’s money, it’s important to know what type of financial professional this person is. You may not be aware but there are two types of financial professionals that recommend investments: brokers or registered representatives and investment advisor representatives. Brokers are often compared to salespeople as they are compensated by commission. They are governed by the financial industry regulatory authority under what’s called a suitability standard.
3(21) Co-Fiduciary Assistance – “Help Me”
You may choose to hire a Registered Investment Advisor (RIA) or representative of one (IAR) as an ERISA 3(21) Co-Fiduciary. They are governed by the Securities Exchange Commission or your state’ law. This co-fiduciary’s advice must be in your best interest, fiduciary. They are compensated by a fee which can be paid out of plan assets just like a broker.
“Contrary to popular view, the main purpose for hiring a retirement Plan Advisor is not to pick stocks and funds or chase the highest rate of returns. It is the knowledge of process by which investments are selected and fiduciary standards are put into practice that makes good 401(k) advisors indispensable.”1
A 3(21) co-fiduciary may provide:
- Investment services only
- Administrative
- Educational
- Consultative services
You will sign a contract with them that stipulates the services they will provide, such as:
- Investment Policy Statement (IPS) creation and monitoring
- Qualified Default Investment Alternative (QDIA) assistance
- Plan search support/vendor analysis
- Plan benchmarking services
- 404(c) assistance
An 3(38) Investment Manager – A do it for me co-fiduciary
I was featured discussing using ERISA 3(38) investment managers in 2013. ERISA 3(38) mangers generally focus on investments only. In this role, a plan sponsor hires an RIA investment manager to select and monitor the plan’s investments. The investment manager accepts the authority to select, manage and replace the investment options. The investment manager acknowledges, in writing, the fiduciary responsibility and liability for the investments. Structured properly, ERISA would view the liability for investment selection as residing with the investment manager. As a plan sponsor, you are responsible for the selection of this manager and oversight while they are under contract. Your ERISA 3(21) co-fiduciary can provide support for this function, if you are not familiar with beta, alpha and other investment terms investment managers might use.
There are several different implementations of the investment manager. Look for an ERISA 3(21) co-fiduciary that understands the different implementations and can help you pick the one you feel is best suited for your participants.
Administering the continuously changing rules of ERISA’s can be a burden. Mountain climbers often enlist the help of guides to help them navigate unfamiliar and treacherous terrain. Given you don’t have the time to become a “prudent expert” why not use a co-fiduciary advisor?
(1) Hiring an Advisor for Your Company 401(k) Retirement Plan, EJ Reynolds blog, May 07, 2013
(2) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
(3) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
(4) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IL, MI.
