Keeping Clients Safe

Ellen Lander: Providing fiduciary consulting services has become a huge part of our practice’s work with our clients. Lawsuits targeting 401(k) plans, and now not-for-profit ERISA 403(b) plans, have become commonplace, and we don’t see any evidence of it slowing down.

Our clients depend on us to provide a procedural and substantive due diligence framework. They expect us to provide objective, well-researched information that can assist them in making fully informed decisions that are considered to be in the best interest of their plan’s participants. And, as we know, that’s not a one-time discussion. Decisions made in the past must be monitored and re-evaluated to ensure they remain prudent in light of changing demographics and current circumstances.

Given that, our fiduciary-level services include ongoing fiduciary training, assisting our clients with the writing of their plan committee minutes and the ongoing reassessment of decisions made in the past.

Against a backdrop of, not just increased litigation and DOL focus, but of ongoing changes in our industry, examples of reassessments would be: re-evaluating the fund share-classes we’ve selected when money managers introduce new shares or when revenue-sharing arrangements change; reconsidering the methodology in place for the allocation of fees, as plan assets and participant counts change, over time; and helping clients maintain and oversee their plan expense reimbursement accounts due to growth in plan assets.

Michael Francis: We find plan sponsors are more aware of their fiduciary liabilities. We believe this is primarily the result of dozens of “successful” lawsuits, which have resulted in hundreds of millions of dollars-worth of settlement checks written by plan sponsors to their plans over the past 10 years.

ERISA became law nearly 50 years ago to protect the hard-earned retirement assets of American workers from individuals who, either due to a lack of expertise or conflicts of interest, are prone to mismanage these assets. Sponsors need help living up to the standard of care set by ERISA. Smart sponsors rely on an independent expert to help them design, implement and monitor a process of ERISA compliance. It starts with training; graduates to outlining a process for the selection, oversight and de-selection of service providers and investment managers; and concludes with an audit of the process. The audit should include an evaluation of plan utilization, documentation of ERISA compliance, and verification of the reasonableness of all plan fees. The law does not expect omniscience or perfection, just a prudent process. Our clients appreciate the disciplined process we help them implement, and they recognize that it truly adds value to their plan.

Doug Prince: The fiduciary-level experience has evolved over the last 10 years by adding more due diligence on fees and expenses, and reviewing share classes, cybersecurity and internal controls. We have clients moving from 3(21) fiduciary adviser to a 3(38) investment manager so they can focus on participant outcomes and reduce the amount of time spent on investment analytics. The major shift is from reviewing past items where there’s no control to becoming more proactive and trying to change the items that can really make a difference in the future. We’ve been working more closely with health benefits consultants and compensation consultants to change the tendency to look at each of these in a silo to how to consider total compensation.

For example, we had a client where we worked with its health care consultant to find money to increase retirement benefits. With another client, we found ways to keep the same match in the plan, but switch the plan from being a traditional safe harbor plan to a QACA [qualified automatic contribution arrangement] to utilize forfeitures, to fund a financial wellness program for employees.

Lander: It is a major ask, and it has grown for the reasons stated. Further, many of our clients are controlled groups of corporations, with many in full-on acquisition mode. So, it’s not just supporting compliance for one plan; it’s ensuring that we’re providing guidance with a far broader scope and in consideration of the other employers’ plans and employee groups. Examples include conducting due diligence for the retirement plans maintained by a company our client may have acquired; consistency of plan design among the various plans maintained; the necessary testing for controlled groups; keeping the fiduciary governance in place, and so on.

We also have been doing a lot of work with clients in ensuring their plan documents are consistent with the way the plan is being administered—e.g., is compensation being reported by the payroll provider accurately, excluding compensation that the legal document excludes?

Francis: Compliance support is not asked for as much as it should be by plan sponsors. Yes, increased lawsuits and audit activity have more plan sponsors asking questions, but it’s still very much a “they don’t know what they don’t know” world out there. We perform plan ERISA and recordkeeping compliance audits for clients regularly. Unlike most advisory firms, we have in-house expertise that came from the recordkeeping industry. In conducting a compliance audit, we have never found a client that was not making mistakes that needed correcting. Retirement plans are extremely complex arrangements. Throw in constantly changing rules and financial markets, and you begin to appreciate the need for an independent expert looking over your shoulder to ensure your plan remains ERISA compliant.

Prince: From a compliance point of view, we have built into our client discussions new twists on litigation. For the most part, the recordkeeping community has really stepped up with notice delivery and other compliance items. The DOL’s focused audit process has changed and is now focusing on missing participants. This has changed some of the items we cover with clients to help keep them ahead of potential issues.

Lander: We’ve always worked as a fee-based consultant. However, we’re seeing more “project work” for many of the services I just mentioned. We’ve had to learn to be very specific as to what services are covered under our standard retainer fee and what services would be considered a separate fee-based project. Further, much of our consulting work would be considered to be settlor functions, which—and assuming our investment advisory fees are paid from the plan—may not be paid from the plan.

Francis: Since Francis Investment Counsel was founded, our compensation practices have not changed. We are a flat-fee-only ERISA fiduciary adviser and always have been. And by flat-fee I mean a set dollar amount per year for a prescribed set of services. We receive zero dollars in indirect or third-party compensation, and our clients rest easy knowing the advice we give and the decisions they make in no way affect our compensation. That said, we continue to see a large number of plan advisers whose pricing model consists of asset-based fees and/or receipt of revenue sharing. We’ve always felt these practices introduce real conflicts of interest, which we don’t believe are prudent.

Prince: We’ve been fee based since the early 2000s, which I am glad we have been.

Lander: I’ve been in the retirement plan business my entire working career—but until about 12 years ago, I always worked for larger companies—either a retirement plan consulting firm or a full-service recordkeeper. I gained much experience in just about every aspect of our business, from actuarial consulting, to investment advisory work, to plan recordkeeping, to compliance, to participant education.

Although I always loved the work I did, I found myself chomping at the bit. I wanted to solve problems and fill the needs I saw in a way that I felt would be best and with an industrywide perspective—not based on what my employer was promoting or where its strengths were. So, in 2008, I started Renaissance Benefit Advisors Group, LLC. It was one of the most terrifying things I’ve ever done, but it’s 12 years later and we’re still here and growing!

Francis: I became a retirement plan adviser over 30 years ago when I realized there are tens of thousands of “wealth managers” whose job description is succinctly summarized as “helping the rich get richer,” while there are precious few financial advisers who exist to serve the consumer of defined contribution [DC] plans. That’s because they don’t have much money and are desperately trying to understand how to accumulate some. I became an ERISA fiduciary adviser after obtaining a law degree and learning about the true purpose of ERISA and that some people actually go to jail for abusing their position of trust, relative to other people’s qualified plan assets.

Prince: I began my career as a Certified Public Accountant [CPA] in a global accounting firm. I started out in the tax department. We had a number of clients in the early 1990s that were terminating their defined benefit [DB] plans and setting up these new 401(k) things. Someone needed to help clients figure this out, and I “drew the short straw” and created a practice out of it. This random event was one of the best things that has happened to my career, and I love it. In the mid ’90s, the investment world wanted to get more involved in the 401(k) space, and that launched my career as a fiduciary adviser.