Like everything else in business, a 401(k) plan comes with risk and reward for our clients. The rewards of a successful 401(k) can be abundant: employee recruitment and retention, and ultimately an avenue for a confident retirement. However, in order to reap these rewards their plan must be carefully designed, employees need to be engaged and educated, and the investments must perform, all while complying with ERISA and the IRC.
The Employee Retirement Income Security Act was signed by President Ford in 1974 and defined a fiduciary under common practices at the time. Practices have changed, but the definition has not. The industry has been training around fiduciary language for many years. We all know it because we've all been to that training. Fiduciary is an "F" word. "Don't' be a fiduciary" is what we've learned.
Because of our industry behavior, the Department of Labor, since at least the Bush administration, has been seeking to create clarity on who is a fiduciary to a plan and when that occurs. This is not some new idea promulgated by the current administration. We have to remember that it is our clients' and their employees' interests, not the industry's convenience, that should drive the fiduciary discussion. When any of us delivers investment advice to our clients, even when skillfully implied as "ideas some of our clients have used," the client reasonably believes we are delivering advice. After all, we use the title Investment Advisor, don't we?
Clients generally aren't the experts, but let's get clear on what sponsors really think we are doing. The annual DC Survey of 5,900 plan sponsors nationwide published in 2013 by plansponsor.com found that 65% of those plans used advisors that were not a qualified retirement plan investment fiduciary. Not surprisingly, 41% of the plan sponsors did not know to ask whether their advisor is a fiduciary. Yet, the majority of clients said the advisor delivered analysis on investments, and almost half of them said the advisor gave individual participant investment advice.
