Many an unsuspecting fiduciary has been thrown into the seat without knowledge of a fiduciary’s duties. There are several key duties. The courts refer to a fiduciary’s duties as “the highest known to law.” Although they may be broken down into a number of subparts, these duties are, in substance: (i) the duty of loyalty to the participants and beneficiaries; (ii) the exclusive purpose requirement; and (iii) the prudent man rule.
The Center for Fiduciary Studies Standards of Care
The Center for Fiduciary Studies offers the following 7 Global Fiduciary Precepts.
- Know standards, laws, and trust provisions
- Diversify assets to specific risk/return profile of client
- Prepare investment policy statement
- Use “prudent experts” and document due diligence
- Control and account for investment expenses
- Monitor the activities of “prudent experts”
- Avoid conflicts of interest and prohibited transactions
Fi360 provides a Self-Assessment of Fiduciary Excellence to determine if your plan is meeting a global standard. Here’s a brief sampling of its 22 questions:
- Are investments managed in accordance with applicable laws, trust documents, and written investment policy statements?
- Is the investment strategy implemented in compliance with the required level of prudence?
- Are applicable “safe harbor” provisions followed (when elected)?
If you did not answer yes to all three, you are not alone. In my experience, no plan has answered yes to all three questions.
A list of a fiduciary’s duties
Noted ERISA Attorney, Fred Reish highlighted the following subparts a fiduciary’s duties. He provided these when commenting on prudent benchmarking of plan services:
- The Duty To Investigate
- The Duty To Use Outside Sources
- The Duty to Prudently Monitor
- The Duty to Know What Products and Services are Available in the Market Place:
- The Duty to Obtain A Broad Range of Information:
- The Duty to Monitor Utilization of The Plan Services:
“Prudent experts” and a fiduciary’s duties
One of the fiduciary’s duties is to seek help, use of “prudent experts.” There are many people that provide needed services to your plan. However some of these would not actually be considered experts. Some acknowledge explicitly that they are not a fiduciary on your plan. The title financial advisor does not mean prudent expert. Some financial advisors may simply have a stockbroker’s registration. This means that their recommendations need to be “suitable” but not necessarily in your best interest.
Financial professionals registered as an investment advisor representative are held to the fiduciary standard of care. Not all of these have studied fi360’s principles of prudent investing process for single vendor 403b and 401k profit sharing plans. A quick way to find out is to ask your plan advisor if they are a fiduciary on your plan. Then ask for the contract that says so.
No time to keep up? If you need help determining what type of help you have or understanding how well you are carrying out your fiduciary duties we would be willing to provide our counsel and investment fiduciary advice.
(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. (2) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. (3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IN, IL, MI