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.
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