In their August 30 issue, Barron’s released its 2010 list of the Top 100 Independent Advisors and Roland Manarin was again included.

Congrats Roland!

Click here to watch the video version of this post.

How are you managing your fiduciary liability?

The biggest responsibility 401k plan sponsors have is to offer plan participants access to full investment diversification.
Here’s the simple truth: By selecting and monitoring the investment options to create a diversified plan, a plan sponsor – that’s you the business owner or trustee – is establishing themselves as a fiduciary.

“But Don,” you say.  ”I don’t do any of that.  My investment provider handles everything so I don’t have anything to worry about.  My fiduciary liability is fine.”

This is incorrect.

Many business owners who sponsor 401k plans hold onto the belief that by hiring a financial advisor, broker, or insurance agent to select and monitor investments, they have relieved themselves of their fiduciary obligation to their plan.

This is not the case and it causes many business owners to be unaware of the litigation risk they’re incurring.

The evidence to all this is stated in a plan’s service agreements.  There you will find that most investment providers are there to assist or help the plan sponsor select the investments in the plan; and not to make the investment selection decisions.

So that becomes the key fiduciary responsibility a plan sponsor has when offering a 401k plan.

Now tie that to ERISA.  If a sponsor doesn’t have the required expertise to make those investment decisions, they are required to go out and hire that expertise.  And this is where many plans fall short.

Look at many 401k plan committees.  They are staffed by people who are very knowledgeable in the industry they work but they’re not investment experts.

The only way for a plan sponsor to remove the fiduciary obligation of investment selection and monitoring is by hiring a qualified professional, such as an ERISA 3(38) investment manager, who acknowledges in writing that they are taking on that fiduciary responsibility, and who then takes full discretion of those duties within the 401k plan.

Only now does the plan sponsor no longer have the fiduciary responsibility, and the inherent liability, for making the investment selection decisions.

A lot of providers are out there waving the fiduciary flag.  “Oh, you want a fiduciary?  We’ll be a fiduciary for you.”

Before you decide on that provider, make sure you first understand what that means.

Written by Don Davidson

“…I think this obsession with the trade deficit and “net exports” can be traced to the fact that the calculation of Gross Domestic Product treats exports as positive and imports as negative, but maybe that’s not the only way to measure economic performance.  Fisher Investments summarized it this way: ”Focusing on net exports is simply wonky. We benefit in myriad ways from importing goods others make more cheaply and efficiently. Plus, increased imports is a sign of economic vibrance!”

>> More On Total Trade vs. Net Exports

.

Via Dave Blair

.

Via Roland Manarin

Professional Independent Fiduciary Matthew Hutcheson joins me to discuss the effectiveness of the existing company retirement plan paradigm, common conflicts of interest in the 401k market, appropriate fee disclosure formats and an overview of Modern Portfolio Theory.

Listen here:  Talk 401k with Don Davidson

.

Articles and resources mentioned in this episode:

- Hearing on fee disclosure before the United States Department of Labor

- Other papers and articles published by Matthew Hutcheson

Via Don Davidson

###

One prudent fiduciary practice for all retirement plans it to routinely benchmark the plan against other options in the marketplace.  We offer a unique solution that we feel is a good benchmark to use.

Today we’re looking at ways to avoid being dragged into 401k litigation and review a recent lawsuit involving a company charged with failing to negotiate lower fees for their plan participants.

Also we’ll share recent thoughts from financial author and columnist Dan Solin and his argument on why 401k plans should offer participants the opportunity to invest in pre-allocated portfolios of low-cost stock and bond index funds

Listen here:  Talk 401k with Don Davidson

.

Articles and resources mentioned in this episode:

- Essential, But Often Ignored, Principles of 401k Fiduciary Risk Management

- Author and Financial Columnist, Dan Solin

- Los Angeles Times article on the Edison International 401k lawsuit

Via Don Davidson

We’re proud to announce the launch of a new podcast specially for business owners, plan trustees and the individuals responsible for running a company’s 401k plan.

Enter Talk 401k with Don Davidson…. a weekly conversation focusing on 401k best practices and prudent fiduciary standards.

The first two episodes are currently available on iTunes so have a listen and send any thoughts or comments to don (at) manarin.com.

Episode 1 – Responsibility for Investment Selection; ERISA 3(21) & 3(38) investment fiduciaries; “Defined Benefit-ization” of Defined Contribution Plans

Guest:  Scott Pritchard, AIFA – Managing Director of Retirement Plan Consulting Service at Capital Directions

Summary:  Plan sponsors cannot eliminate their fiduciary liability but there are ways it can be managed and reduced – Partnering with an investment fiduciary can help reduce fiduciary liability as we cover the roles and responsibilities of an ERISA 3(21) investment advisor and 3(38) investment manager – Are there better alternatives to target-date/lifestyle mutual funds? – Plus much more

Episode 2 – Benchmarking your 401k; Plan Costs; Department of Labor Fee Disclosure Rules

Guest:  Tom Kmak – CEO of Fiduciary Benchmarks

Summary:  Benchmarking a company 401k plan involves much more than simply evaluating the cost – In today’s 401k space, plan sponsors must look at much more that presents the overall value the plan is delivering to participants – What do the Department of Labor’s recent fee disclosure rules mean for business owners and the retirement plans they offer?

Via Don Davidson

“The problems are now spreading to state and local government in America. So far, at least, the backlash against US federal government spending is political, not financial. The US government can still borrow at 3%, or less, for ten years. But Americans are looking around the world, and at their own state budgets, and seeing the eventual problems to come,” continue reading here.

Via Roland Manarin

Retirement Plans: Former Employees Can Be Current Problems What happens when employees leave your company but don’t take their 401k assets with them?  While there isn’t a one-size-fits-all solution, it is helpful to know what your responsibility is and how this all impacts your company retirement plan.

47% of early boomers could run shy of cash The threat of retirement under house arrest is a fear for many retirees and this article from CNN Money shows how for some just how real this threat is. All the more reason to make sound financial decisions throughout our working years.

Even sophisticated investors have just been chasing returns Many people think of sophisticated investors as those who represent the so-called “Smart Money.”  As it turns out, we are all subject to our emotions as the research from academic studies concludes the richest individuals also fall victim to chasing investment returns.

10 First Time Homebuyer Mistakes With mortgage rates at the lowest levels in five decades, now could be a good time for purchase your first home.  Before you make that decision, consider these key lessons showing you how to help make your first home buying experience a smart financial experience.

Via Don Davidson

As the topic of fiduciary responsibility and fee transparency heats up in the 401k space, I thought it would be worth noting to address the characteristics of working with someone free of conflict vs someone with a bit more of a sales-oriented agenda.

So here they are. My telltale signs that you are working with a true 401k fiduciary:

1. They work for you the client and not just their employer. In my opinion, your 401k advisor should treat you as their most prized possession and not just another account where they earn a few extra commission dollars.

2. They deliver investment management and advice using a fiduciary standard of care and not just on suitability.  If your 401k advisor is part of a Registered Investment Advisor (RIA) then chances are good this is the case with your plan. Keep in mind that most financial salespeople working for a broker/dealer or insurance company by law cannot serve as a fiduciary to your 401k plan.

3. They are legally required to put your best interests first, avoid all conflicts of interest and offer full transparency of all plan costs and fees.

4.  They are able to serve as an ERISA 3(21) and/or 3(38) investment fiduciary and are willing to accept that responsibility in writing.   This relieves the plan sponsor and the individuals overseeing the plan from having to take responsibility for investment selection and monitoring.

5.  They do not accept commissions from the investment products in your plan but rather are compensated by an annual fee or fee for service.

You with me so far?

It’s pretty interesting (and slightly troubling) to me that while this all seems obvious, so few plan sponsors manage their 401k in such a way.

A short while ago I reached out to Chris Carosa who runs FiduciaryNews.com on Twitter and asked what business owners need to do better in order to address these issues head on.  His reply back to me is below:

So where does one start?  Here’s a simple action step you can take now:

- Create a spreadsheet that shows all costs involved with your plan including fees to the investment advisor and plan administrator.  Be sure to also include the expense ratios of the investment options in your plan and how they compare to industry averages.  Simply knowing what you are paying for your plan will go a long way towards improvement.

###

Be sure to check out this list of helpful online resources for 401k sponsors offered by the Dept. of Labor and our new podcast, Talk 401k.

Via Don Davidson