Business Owners Can't Eliminate Fiduciary Duty
THE 401KPLANPRO SUPPORTING DOCUMENTS
Business Owners Can’t Eliminate Fiduciary Duty
Working with a qualified retirement plan adviser can help business owners offer employees high-quality plans with reasonable fees. Here are some questions owners should ask.
Does your plan adviser help you fully understand the retirement plan environment? Most business owners and managers who are responsible for their company’s retirement plan have a general understanding that they serve as “fiduciaries” for their plan. In my experience, however, I have found that many fiduciaries are uncertain of their duties, underestimate their duties or think someone else has taken on that responsibility for them. The first rule for business owners is to recognize that they can never fully eliminate their fiduciary responsibilities. Business owners can hire people to help them perform their fiduciary duties, but they can never be fully divested. Failure to fully understand your fiduciary duties can be costly because the Employee Retirement Income Security Act of 1974 allows for plan fiduciaries to be held personally liable for errors or breaches in conduct. The Department of Labor’s Employee Benefits Security Administration recently published its findings from audits concluded during fiscal year 2013. It closed 3,677 civil investigations with 2,677 - or 72.8 percent - plans assessed penalties totaling $1.6 billion. EBSA recently added 1,000 new auditors so the chance of undergoing an audit is increasing.
Does your plan adviser serve as a plan fiduciary and is that commitment in writing? Because of the fiduciary duties present in every retirement plan, the first criteria a business owner should consider when partnering with an outside plan adviser is to hire only those who acknowledge in writing that they will serve as a fiduciary. Why? Because the act of offering advice to the business owner can itself be a fiduciary act. If an adviser is not serving as a plan fiduciary they are often prohibited by the investment firms they work for from offering the kind of advice most business owners and plan fiduciaries want and need. Such guidance may include investment selection or termination of plan investments, creation of an investment policy statement, taking an active role within the investment committee, training plan fiduciaries on their roles and responsibilities, and individual employee investment advice. That is not to be confused with general education permitted by non-fiduciary advisers.
www.401kplanpro.com | 866.907.4275
THE 401KPLANPRO SUPPORTING DOCUMENTS
Does your plan adviser always put employee interests first? Fiduciary advisers must follow one rule above all others - always act in the employees’ best interests with regard to an established plan. This keeps their advice and recommendations consistent with the obligations of the business owner and ERISA. Since non-fiduciary advisers are held to a suitability standard - meaning their recommendations need only be suitable, not necessarily what’s best for employees - they don’t need to comply with the heightened standards set forth in ERISA. If an adviser “sells” the owner on a new record keeper or suggests an investment line-up, that adviser may be unintentionally putting the business owner at risk. This might occur when the owner is not a retirement plan expert.
Is your plan adviser an expert in retirement plans? An important consideration is finding an adviser who focuses on retirement plans and is an expert in the field. I have met advisers who admitted their primary motive in advising retirement plans was to become the business owner’s personal investment adviser or to capture rollovers from retiring employees. Plan advisers should focus on delivering the best retirement plan advice and service, not cultivating future clients. They should take time to earn the appropriate designations and seek educational opportunities to stay current.
Has your plan adviser explained all fees associated with your plan? It has been general practice that plan advisors are compensated through a revenue-sharing program like 12b-1 fees. Revenue sharing is just a fancy term for paying plan advisers indirectly from the fees collected by the plan’s investment managers. Revenue sharing fees are typically included in the expense ratio of each fund within the plan, and this total fee is now required to be reported to every employee through a disclosure statement. It is common, however, for the adviser’s fee to be buried within the overall cost of each investment. Additionally, most fees are calculated as a percentage of the assets in the plan meaning that as workers continually save money for retirement, the adviser is paid ever higher fees even though the level of service from one year to the next is often similar. Some business owners have been sued for not keeping a lid on fees as plan assets continue to grow. Business owners now have their own disclosure document that spells out how much compensation each adviser/vendor is receiving from the plan. It is imperative that this document be reviewed, understood and acted upon as necessary. Hire advisers who not only disclose their fee to the business owner, but to the employees as well. Better yet, pay the adviser directly from the business and reduce the fees deducted from the plan. The environment surrounding retirement plans is highly regulated and built on a foundation that business owners must act solely in the best interest of their employees. Business owners should hire a qualified adviser who sits on the same side of the table with the owner as a fiduciary, and who understands the complexities and best practices of retirement plans. Investment Advisory services offered through Virtue Capital Management, LLC (VCM); a SEC Registered Investment Advisor which only does business where it is properly registered or is otherwise exempt from registration. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Virtue Financial Advisors, LLC and VCM are independent of one another. All investments and investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. Information provided should not be construed as personalized investment advice. There can be no assurances that any investment or strategy will match or outperform any particular benchmark. Past performance is not a guarantee of future investment success. Dollar cost averaging, asset allocation, rebalancing, and diversification strategies do not assure a profit or protect against losses in declining markets.
www.401kplanpro.com | 866.907.4275
Business Owners Can’t Eliminate Fiduciary Duty
Working with a qualified retirement plan adviser can help business owners offer employees high-quality plans with reasonable fees. Here are some questions owners should ask.
Does your plan adviser help you fully understand the retirement plan environment? Most business owners and managers who are responsible for their company’s retirement plan have a general understanding that they serve as “fiduciaries” for their plan. In my experience, however, I have found that many fiduciaries are uncertain of their duties, underestimate their duties or think someone else has taken on that responsibility for them. The first rule for business owners is to recognize that they can never fully eliminate their fiduciary responsibilities. Business owners can hire people to help them perform their fiduciary duties, but they can never be fully divested. Failure to fully understand your fiduciary duties can be costly because the Employee Retirement Income Security Act of 1974 allows for plan fiduciaries to be held personally liable for errors or breaches in conduct. The Department of Labor’s Employee Benefits Security Administration recently published its findings from audits concluded during fiscal year 2013. It closed 3,677 civil investigations with 2,677 - or 72.8 percent - plans assessed penalties totaling $1.6 billion. EBSA recently added 1,000 new auditors so the chance of undergoing an audit is increasing.
Does your plan adviser serve as a plan fiduciary and is that commitment in writing? Because of the fiduciary duties present in every retirement plan, the first criteria a business owner should consider when partnering with an outside plan adviser is to hire only those who acknowledge in writing that they will serve as a fiduciary. Why? Because the act of offering advice to the business owner can itself be a fiduciary act. If an adviser is not serving as a plan fiduciary they are often prohibited by the investment firms they work for from offering the kind of advice most business owners and plan fiduciaries want and need. Such guidance may include investment selection or termination of plan investments, creation of an investment policy statement, taking an active role within the investment committee, training plan fiduciaries on their roles and responsibilities, and individual employee investment advice. That is not to be confused with general education permitted by non-fiduciary advisers.
www.401kplanpro.com | 866.907.4275
THE 401KPLANPRO SUPPORTING DOCUMENTS
Does your plan adviser always put employee interests first? Fiduciary advisers must follow one rule above all others - always act in the employees’ best interests with regard to an established plan. This keeps their advice and recommendations consistent with the obligations of the business owner and ERISA. Since non-fiduciary advisers are held to a suitability standard - meaning their recommendations need only be suitable, not necessarily what’s best for employees - they don’t need to comply with the heightened standards set forth in ERISA. If an adviser “sells” the owner on a new record keeper or suggests an investment line-up, that adviser may be unintentionally putting the business owner at risk. This might occur when the owner is not a retirement plan expert.
Is your plan adviser an expert in retirement plans? An important consideration is finding an adviser who focuses on retirement plans and is an expert in the field. I have met advisers who admitted their primary motive in advising retirement plans was to become the business owner’s personal investment adviser or to capture rollovers from retiring employees. Plan advisers should focus on delivering the best retirement plan advice and service, not cultivating future clients. They should take time to earn the appropriate designations and seek educational opportunities to stay current.
Has your plan adviser explained all fees associated with your plan? It has been general practice that plan advisors are compensated through a revenue-sharing program like 12b-1 fees. Revenue sharing is just a fancy term for paying plan advisers indirectly from the fees collected by the plan’s investment managers. Revenue sharing fees are typically included in the expense ratio of each fund within the plan, and this total fee is now required to be reported to every employee through a disclosure statement. It is common, however, for the adviser’s fee to be buried within the overall cost of each investment. Additionally, most fees are calculated as a percentage of the assets in the plan meaning that as workers continually save money for retirement, the adviser is paid ever higher fees even though the level of service from one year to the next is often similar. Some business owners have been sued for not keeping a lid on fees as plan assets continue to grow. Business owners now have their own disclosure document that spells out how much compensation each adviser/vendor is receiving from the plan. It is imperative that this document be reviewed, understood and acted upon as necessary. Hire advisers who not only disclose their fee to the business owner, but to the employees as well. Better yet, pay the adviser directly from the business and reduce the fees deducted from the plan. The environment surrounding retirement plans is highly regulated and built on a foundation that business owners must act solely in the best interest of their employees. Business owners should hire a qualified adviser who sits on the same side of the table with the owner as a fiduciary, and who understands the complexities and best practices of retirement plans. Investment Advisory services offered through Virtue Capital Management, LLC (VCM); a SEC Registered Investment Advisor which only does business where it is properly registered or is otherwise exempt from registration. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Virtue Financial Advisors, LLC and VCM are independent of one another. All investments and investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. Information provided should not be construed as personalized investment advice. There can be no assurances that any investment or strategy will match or outperform any particular benchmark. Past performance is not a guarantee of future investment success. Dollar cost averaging, asset allocation, rebalancing, and diversification strategies do not assure a profit or protect against losses in declining markets.
www.401kplanpro.com | 866.907.4275
