fi360 Blog

Fiduciary Links--Happy New Year!

First of all, we would like to say Happy New Year to everyone out there reading this blog.  We launched this blog at our conference this year and it has been picking up steam all year long.  We look forward to continuing that momentum and making the fi360 blog even more valuable going forward.  As always, we welcome your feedback on what we can do to improve and remind you that your comments are appreciated below each post and that AIF/AIFA designees can become blog authors.  Send me an email at blog@fi360.com to submit your feedback or request blog access. 

For this week's Fiduciary Links, here is a collection of the best Year in review/Looking forward to 2009 links that I could find.  See you all next year!

• Financial Planning magazine looks at historical market cycles to put this year's volatility in context in their Outlook 2009 column.
• Plansponsor's year in review focuses on auto enrollment, disclosures and market tumult.
• Seeking Alpha has a number of year-end features, including Positioning for '09, insights from 10 money managers on how they are adjusting for the new year.
• The Fund Spy at Morningstar says that abnormal market conditions are the norm, which is why 2008 proved again why diversification is still the best way to protect yourself.
• InvestmentNews and Pension & Investments have year-end data books looking at stats, charts and graphs on a wide array of investment management data.

If you have any other good links, let us know or submit them to the comments section below.  If you are on LinkedIn.com and are an AIF/AIFA designee and/or Tools subscriber, sign up to join the Fiduciary360 group.

UPDATE: Pension Risk Matters blogger, AIFA designe and friend-of-fi360 Susan Mangiero has posted a New Year's ponderings post.

A question on participation education

For ERISA plans, fiduciaries are responsible for all plan investment decisions, including participant decisions, unless they comply with 404c.  This article from Fred Reish explains the attractiveness and requirements of 404c.  You will note in that article that while sufficient information to allow participants to make informed investment decisions is required, participant education is not explicitly required. 

However, in testimony given by Mr. Reish arguing for improvements to 404c, he argues that general fiduciary provisions say that participants should be informed to make reasoned investment decisions for investing for retirement, and cites evidence that without education, participants are generally not informed.

We believe a proactive approach is the preferred method of participant education, and concur with Mr. Reish’s opinion that education be consistent with the guidance under DOL Interpretive Bulletin 96-1(d), which says information relating to plan information, general financial and investment information, asset allocation models, and interactive investment materials are not considered investment advice that gives rise to fiduciary status.

For non-ERISA plans, it is considerably more clear that education is not required because they don’t fall under these ERISA requirements, but why wouldn’t you want to achieve this higher standard?

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The post was based on an email inquiry from an AIF designee.  A 404c checklist used in consultant's assessments and in CEFEX Certifications is available for AIF/AIFA designees to download from the designee portal. If you have a question for fi360 that you would like to see answered in the fi360 Blog, please note them in the comments section below or email them to blog@fi360.com.

Welcoming an AIF designee to the blogosphere!

AIF designee Joshua P. Itzoe, who released his book Fixing the 401(k) in October, launched his Fixing the 401k blog last week.  The blog is focused on further expanding on the premise of the book,
"What Fiduciaries Must Know (And Do) To Help Employees Retire Successfully."

Joshua writes in his first post, "This blog is intended to provide you, the reader, with timely and useful information concerning fiduciary responsibility, ERISA, and developments in the rapidly changing 401(k) industry. It is based on my strong belief that our country's retirement system is broken and in critical need of repair and transformation."

We congratulate Joshua on the success of his book and look forward to following his blog.  Josh is another great example of AIF and AIFA designees who are leaders in advancing the fiduciary cause.

If you are or know an AIF/AIFA designee who is making a difference in the industry, let us know.  We'd also like to know of other great blogs and sources of information that you go to for more information.  Make sure you leave them in the comments section below.

Privilege in fiduciary assessments

As a company that develops fiduciary assessment materials and processes, the question of privilege often comes up. What happens when, in the course of a fiduciary review, shortfalls in your processes come up?  Are you required to share results with plan participants or other invested interests and expose yourself to potential liability?  To what extent are results of the type of review we suggest every fiduciary undergo protected?  Does a lawyer need to be engaged to perform this type of review?

First off, I preface this answer with two points.  One, when it comes to fiduciary duties, ignorance is not a viable defense.  Fiduciary liability exists when there are shortcomings, not when you become aware of those shortcomings.  So being proactive in your awareness of fiduciary duties and your adherence to them will do more for your ability to protect yourself from liability than ignoring them.  Second, I am not a lawyer, so do not consider this legal advice and always consult with your own legal counsel before engaging in a fiduciary review.

With that said, based upon the advice we have received from legal counsel, the preferred course of action to protect the findings of a study or audit is to engage an attorney, not as the service provider, but rather as the legal representative of the party seeking to have the service performed. The attorney is retained because of the legal ramifications of what a study may reveal. The attorney then requisitions the study as part of their legal analysis. Engagement of the service provider by legal counsel creates the necessary protections across all the parties involved.

For example, let’s suppose a retirement plan sponsor wants to have a formal assessment done to determine the extent to which the investments are being managed in conformity with a fiduciary standard of care. If the sponsor directly contracts with a professional (lawyer or not) for the fiduciary assessment and it is paid for with plan assets, the plan participants would have the right to see the findings because the plan itself, not the organization sponsoring the plan, is the client and the engagement may not be construed as a strictly legal exercise. If, on the other hand, the sponsor’s corporate counsel engages the professional to conduct the fiduciary audit and the audit is not paid for from plan assets, my understanding is that the findings could be protected by attorney client privilege. I use the word “could” because I have been advised that great care must be exercised to preserve a claim of privilege in the conduct of interactions between clients and counsel.

The first question that needs to be asked is who is the best equipped to conduct the service (be that a mock exam or a fiduciary audit). I would recommend that anyone looking to contract for such a service should conduct a request for proposals to find the best candidate for the job. Specific training and experience in conducting fiduciary assessments would be much more important in the selection process than whether or not the candidate has a law degree.

Fore more information about fiduciary assessments, please visit our assessments page and CEFEX.

Fiduciary Links

We'll start off with what are some of the most intelligent recommendations I've ever seen in print.  First, when choosing a financial adviser, choose an AIF. Next, if you want to be happy with tool you use to select and monitor plan investment options, choose fi360 Tools. And, for customizing Investment Policy Statements, try the fi360 IPS Generator.

On to the rest of the links:

• Here is an interesting article on a new bill designed to provide relief to both companies and retirees because of the market downturn, including modifications to the PPA. See also the AP version of the story, the bill itself and the Congressional Record's write up of the bill. Just a day before this bill was passed, HR firm Hewitt Associates suggested other modifications to the PPA pension funding rules.
• The Curious Capitalist at Time magazine suggests 401(k)s are not the right retirement vehicle for most Americans.
• An intelligent article from Financial-Planning magazine discusses "imagineering: the fine art of where to go from here" as it relates to the financial environment of the last few months. This article also echoes Blaine's latest Fiduciary Corner column.
• And, though not quite fiduciary but good to know nonetheless, here is an article from our local Pittsburgh Post-Gazette about "greening" your company.

If you have any other good links, let us know or submit them to the comments section below.  If you are on LinkedIn.com and are an AIF/AIFA designee and/or Tools subscriber, sign up to join the Fiduciary360 group.

ERISA Bonding Requirements

I was recently asked by a designee to shed some light on ERISA bonding requirements for fiduciary advisers. 

ERISA bonding requirements are meant to protect from plan losses due to theft and embezzlement. The bond provides coverage for persons handling plan funds in an amount no less than 10 percent of the amount of funds handled by such person, up to $500,000 (minimum of $1,000). The $500,000 limit applies on a per plan basis. As of 12/31/2007, the minimum bonding requirement for all plans that offer company stock increased from $50,000 to $1,000,000.

This requirement is addressed in Practice 1.6 of the Prudent Practices for Investment Advisors Handbook. The two criteria under this Practice require the advisor to have a “reasonable basis to believe the assets are within the purview of the relevant judicial system” and that “ERISA fiduciaries have the required surety bond.”

In the case of the Fiduciary Adviser role as specified by the Pension Protection Act of 2006 (PPA), the Prudent Practices for Fiduciary Advisers Handbook (edited by the Financial Planning Association) addresses this in Practice 1.6 as well. The criteria for this Practice are:

• 1.6.1 The fiduciary adviser shall discuss with the client which assets are generally protected from creditors and which are not.
• 1.6.2 The fiduciary adviser shall comply with any required surety bond.
• 1.6.3 The fiduciary adviser shall ensure privacy of the client information received in the course of the engagement and shall notify the client in writing as required by the PPA the uses and disclosures of client information.

If interested, you can obtain a copy of this handbook from our Fiduciary Store of the Financial Planning Association's website.

Another good source on the subject is a recent field assistance bulletin from the Department of Labor.

If you have a question you'd like to see answered in Fiduciary Q&A, send us an email at blog@fi360.com

Give clients the confidence they need

My Fiduciary Corner column in InvestmentNews this week focuses on the adviser's role in instilling a sense of stability during the chaos of recent turmoil. While you as an adviser may feel pressure to try new strategies or abandon what you have known to be true in order to combat the short-term outlook, it is still your role as a fiduciary to ensure decisions are made with the big picture of your clients in mind.  You will be right far more often by continuing to follow the laws that govern fiduciary conduct, such as the duty to diversify portfolios and apply generally accepted investment principles, than by trying the radical strategy such as moving to cash or attempting market-timing.

The reason people typically turn to professionals is to be reassured that order can be restored to their world. They want to hear a specific plan in familiar terms, preferably using tried and true methods. Think about this in terms of medical treatment. When I go to my doctor, I know most of what he’s going to say – exercise, eat right, get plenty of rest, and return for regular checkups. If I am sick, I also expect to get a prescription to treat the cause, or manage the symptoms, of my current ailment. What I don’t expect, and what I pray won’t happen, is to find myself in a conversation about experimental new treatments that may save my life in what appears to be a hopeless situation. If ever I do get that dire message from my doctor, it better be accurate, because what is good for me over the long term no longer has much relevance, including my relationship with that doctor.

Have you ever been tempted to, or has a client ever come to you wanting to, throw convention out the window and try the radical treatment?  What did you do?  Let us know your experiences of being in crisis mode in the comments section below.

Read my full article at InvestmentNews.com.  If you like it, make sure you click the "Recommend" button at the start of the article.

Fiduciary Links

• The SEC put out an open letter this week to all registered firms that if you are thinking about ways to cut back, make sure compliance isn't one of them.
• Allodium Investment Consultants, the subject of a recent fi360 case study, just put out the December edition of their newsletter Steward.  This month's newsletter focuses on the importance of monitoring, diversification and rebalancing for managing risk.  This is a great example of how to reach and engage your clients and prospects.
• PLANADVISER magazine's cover story this month is about why advisers are increasingly embracing fiduciary status and preventing problems associated with it. Interviewees for the article include AIF designees Chip Morton and David Witz and AIFA designee Bruce Ashton, Witz and Ashton have also been featured speakers at the fi360 Conference.This article is right on in that many advisers that do not realize they are fiduciaries and many more who think they know what that means but don't really. Read this article, take a look at the "Three Keys to Avoiding Trouble" section at the bottom of the page and then look at fi360's Practices, Training and Tools and you'll see some of the great support options we offer for what is an obvious problem.
• PLANSPONSOR has an upcoming webinar on the impact of 408(b)(2) going forward.
• Two months ago, Blaine said in his Fiduciary Corner column that oversight and checks and balances was a key component to the success of the bailout.  Well, House Financial Services Committee chairman Barney Frank (D-MA) announced today a committee hearing on oversight concerns he has.  The hearing will take place next Wednesday and will be available live via webcast.

If you have any other good links, let us know or submit them to the comments section below.  If you are on LinkedIn.com and are an AIF/AIFA designee and/or Tools subscriber, sign up to join the Fiduciary360 group.

Webinar--Uncovering trends in uncertain times

Today's Webinar from CEO Blaine Aikin and COO Rich Lynch (download the presentation slides) looks at the recent industry turmoil, the bailout, regulatory outlook, and what professionals can do to protect themselves, their clients, and help create a healthier environment . 

In the Call to Action slide, Blaine and Rich propose steps you should be taking during uncertain times:

1. Focus on process over performance as your value proposition.
2. Simplify your practice and remove inefficiencies that don't add real value.
3. Seriously consider whether now is the time to call yourself a fiduciary.
4. Know the risks to you and your clients and factor them into your process.

The bottom line is that application of a defined fiduciary process eliminates uncertainty and is the model that is increasingly being favored by investors, professionals, and regulators. Those who embrace the model now will prosper, while the rest will not be able to survive.

We want to know what processes you are implementing to mitigate risk in your practice during these uncertain times.  Leave your thoughts in the comments section below.  Immediately following the webinar, feel free to continue the conversation here. 

New article competition submission: Getting a fiduciary checkup

A new article has been posted to the article competition page.  AIFA designee Roger Levy of Cambridge Financial Services Group in Greenwich, CT, authored the article "The employer need for a fiduciary checkup." The article explains how adherence to prudent investment practices and performing fiduciary reviews enables employers the luxury of offering 401k plans to their employees with the peace of mind that they are not vulnerable to lawsuits.

It is an excellent article that could be passed out to plan sponsors to explain the value you provide as an AIF or AIFA designee. Make sure you submit your feedback on this and other articles in the competition, either to resources@fi360.com or in the comments section below.

If you are an AIF or AIFA designee who has written or would like to write an article for our $1,000 article competition, visit the article competition page for more details.  Official rules and submittal form can be found in the designee services are of the designee portal.