PANC 2009: How to Stay out of Trouble on the Fiduciary Front

To cover themselves on the fiduciary front, Stace A. Hilbrant, Managing Director, 401(k) Advisors, LLC, an NRP member firm, suggested advisers start with a service agreement with their plan sponsor clients that details roles and fiduciary responsibilities.

The Investment Committee

John Cate, senior vice president and wealth advisor at Morgan Stanley Smith Barney, advocated establishing an investment committee at the plan sponsor and an investment policy statement (IPS). The committee should meet quarterly and should keep minutes in a fiduciary file. Cate warned that the Department of Labor is “digging into everything.” He said a client of his was audited and the DoL looked back nine years, particularly interested in prohibited transactions.

Larsen contended that it is not the committee’s job to make sure everything discussed is done. Advisers should set the meeting agenda, take minutes, and distribute the minutes to committee members. In addition, Larsen said advisers should train committee members on fiduciary responsibility. He noted that if committee members have to sign a fiduciary acknowledgement, it changes their mindset.

Michael Case Smith, vice president of Institutional Strategies, Avatar Associates, said plan design is key to staying out of trouble. There is less risk of liability if participants have less choice, but advisers should make sure that fits with their business model and with client need. Smith also said advisers should ensure justifications for investment selections are documented, and for target-date funds that might entail mean drilling down to the glide paths to be sure plan sponsors understand what choice they are making.

Hilbrant noted that NRP has a fiduciary checklist to minimize fiduciary risk. There must be a process in place and all steps must be documented, he said. It is not all about self-protection, Hilbrant said, but being a good fiduciary also results in a better plan for participants.