Choose the Right Plan Advisor

You want to concentrate on growing your business, but as a Plan Sponsor, you bear fiduciary responsibility for your organization’s retirement plan according to DOL, which states:

“The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions.”

You can engage a financial advisor who is willing to share fiduciary responsibility and to advise you on a range of issues. Note that the term ‘financial advisor’ is widely used, though not all will accept fiduciary responsibility – or provide the level of service you need, from selecting appropriate funds and actively managing investments, to monitoring your process of prudence and keeping you informed of evolving regulatory requirements to which you are held accountable.

It is important to choose wisely. You have a lot on the line.

Partner Type Considerations

Partner Type Duties Considerations
Account Representative of Plan Custodian
  • No fiduciary responsibility
  • No advice on process or financial investments
 ERISA requires all Plan Sponsors to hire knowledgeable advisors if you lack the technical knowledge and experience to properly manage investments.
Brokers
  • No fiduciary responsibility in select and limited circumstances
  • Recommend funds exclusively from the portfolio they sell and are compensated.
  • Provides participant education (a DOL requirement)
 The DOL holds you responsible for selecting funds that are in the best interest of your employees. Without fiduciary oversight, you’re left to your own to pick a group of funds to include in your plan.
3(21) Registered Investment Advisor
  • Accepts co-fiduciary responsibility in writing
  • Evaluates broad market to recommend funds to the Plan Sponsor
  • Provides participant education (a DOL requirement)
  • Advises Plan Sponsor on fiduciary process
 3(21) makes recommendations, but it’s up to you as Plan Sponsor to accept and act on them.
3(38) Investment Manager
  • Acknowledges fiduciary responsibility in writing
  • Appointed by Plan Sponsor to manage the investment process of the plan
  • Solely responsible for selecting, monitoring and replacing appropriate funds from across the entire market
  • Monitors investments and recommends changes as appropriate
  • Provides participant education (a DOL requirement)
  • Advises Plan Sponsor on fiduciary process
 Plan Sponsor still has fiduciary responsibility, as well as a responsibility to oversee the 3(38) Investment Manager.

NOTE: These are general models that exist within the financial services industry. Keep in mind that each company may be unique. Get a list of questions you need to ask any financial services partner you are considering to manage your employees’ retirement plans.