“The pace of change in our industry is staggering,” says Rick Irace, chief operating officer at Ascensus, in Allenwood, New Jersey. “Most of that centers on regulations that continue to evolve, and they’re becoming more complicated.”

Despite the elevated importance of fiduciary services, only 16% of advisers see fiduciary oversight as the area in which they add the most value to clients, says the Vestwell 2023 Advisor Trends Report. 

Still, in the first half of this year, there were more than 20 excessive fee and fiduciary imprudence cases filed, according to an analysis by Euclid Fiduciary. While lawsuits have historically targeted larger plans, smaller plans must also prioritize risk mitigation, and their advisers can help, says Andy Harper, senior vice president of wealth management solutions with LPL Financial in Fort Mill, South Carolina.

“One of the most important things [to get] plan sponsors to understand is that plan fiduciaries have personal liability. They’re looked upon by the Department of Labor as prudent experts,” he adds. 

Fiduciary status can be a challenge for small-plan sponsors, which often lack a well-staffed human resources department. 

“It’s hard for clients on their own to keep up with all the changing regulations without having an adviser that can bring the ERISA [Employee Retirement Income Security Act] team to the table,” Irace says. “By day, those clients are running their business, then by night they’re acting as a fiduciary, and they may not really understand what their responsibility is.”

To best service plan sponsor clients, advisers need to not only stay up to date on current regulations, but remain prepared to educate sponsor clients about what those regulations mean for their plans, both short and long term. Advisers also must make sure the client is crystal clear about the type of services they are providing and what type of fiduciary responsibilities they assume.

While plan sponsors can never fully outsource their fiduciary responsibility, they still must understand the difference between working with a 3(21) adviser, who recommends investments but may not execute them without approval, or a 3(38) adviser, who may invest on her client’s behalf. The service agreement with the sponsor should specifically outline in which capacity the adviser is working, but it can also be helpful to discuss that status with the sponsor. 

The adviser may also want to discuss 3(16) fiduciary outsourcing with clients, to alleviate some of the fiduciary burdens concerning plan administration. A recent survey by Pentegra Retirement Services found that nine out of 10 advisers said clients spend up to half the adviser’s time on administrative tasks that could be outsourced.

It is also crucial that plan advisers work to develop a transparent, trusting relationship with their clients, so the latter will feel comfortable telling them if they have concerns about a specific fiduciary issue, says Frank Bitzer, an ERISA attorney and national ERISA consulting leader at Marsh & McLennan Retirement and Asset Services in Cincinnati. 

“As a service provider, I’m not a mind reader,” Bitzer says. “If your client doesn’t tell you it’s struggling or doesn’t understand something, if it doesn’t know what its fiduciary duties are, that’s incumbent upon [you, the] adviser, to ask the right questions upfront and for everyone to understand there’s going to be some education and training.”

To ensure compliance, Irace recommends that advisers meet with each sponsor at least a few times a year to review investments compared with their benchmarks, to make sure plan expenses remain reasonable, and to confirm that providers are continuing to offer the services  promised.

Todd Hedges, director of retirement plan sales at Paychex Retirement Services in Greenland, New Hampshire, recommends quarterly meetings. Besides reviewing investments, Hedges says, the adviser should discuss how he is working with participants and how his educational or engagement efforts are affecting outcomes, also whatever ideas he has for making time with these employees more effective.

“That quarterly plan review is important because it means the plan sponsor and adviser are aligned on the health of the plan,” Hedges says. 

Once a year, advisers should go deeper into plan data with sponsors, looking at participations rates, deferral rates and investment details such as whether the glide path for target-date funds makes sense, Hedges says. The adviser can guide these conversations with the investment committee, ensuring a balanced debate and prompting the plan sponsor to properly document the conversation (see sidebar).

If sponsors have no plan committee charter in place, that is another area where the adviser can assist and also provide education for both new and veteran committee members on their fiduciary status and new and upcoming regulations that might affect their responsibilities, Bitzer says. 

“We’re going to explain what a good structure looks like and help sponsors build out that structure, with committee charters and an investment policy statement,” he adds. “We explain the importance of having a retirement plan committee and/or an investment committee—what they are, why they’re important and how they should function.”

Bitzer says plan advisers can, additionally, help the client evaluate which employees internally might make effective committee members.  And he suggests advisers allot time in a committee meeting to go over the plan’s Form 5500: This is a good opportunity to make sure committee members understand the plan’s investment options and the requirement to make 404(a)5 and 408(b) fee disclosures.

“That [review] gives us a great idea of what the plan looks like from a compliance perspective and from an ongoing management perspective,” Bitzer says. “We can look at it and, at a glance, get a pretty good idea of whether or not a plan has certain compliance issues”—which the adviser can then discuss with the client.

“We’re going to explain what a good structure looks like and help sponsors build out that structure, with committee charters and an investment policy statement.”

While a plan adviser should work with his clients to review and evaluate their investments, he should also build some flexibility into plan policies to allow for making situational decisions that take context into account, says Brent Petty, a partner in, and managing director and senior investment adviser at, NWCM in Salem, Oregon.

“It’s a balancing act,” Petty says. “You want to still have flexibility to make executive decisions. Maybe an asset manager is having a tough time, and you want to give them an opportunity to work their way off the watch list, rather than having an investment policy statement that is so rigid you’re forced to get out at the low and miss an opportunity to stay with a good manager.”

Such situations may have become more prevalent in the past year or so amid a volatile market and rising interest rates, Petty says. “[Sponsors should] want to put structure in place, but not so much structure that [they] can’t apply common sense and work with an adviser to make prudent decisions that factor in the present scenarios,” he says. 

Similarly, a fee policy that requires going with the lowest-cost share class might leave a plan with an investment option that does not perform as well, Petty says. Fees are always an important factor for sponsors to consider from a fiduciary perspective, but this does not automatically mean opting for investments or providers with the lowest fees. 

Rather, the adviser should work with clients to ensure they are paying “reasonable” expenses, and should re-evaluate those as the market or the client’s business changes. For example, as plan assets grow, the plan may become newly eligible for lower-cost investments, Hedges says. “Usually when the plan grows, the pricing should go down.” 

Another key area for the adviser to review with plan sponsor clients is whether any conflicts of interest exist in the investments their providers offer.

“There are still vendors out there that will force their investment product into the plan, even though it may not be the best investment product available,” Hedges says. “That may be driving up the price of the plan or affecting performance. Advisers can help plan sponsors ensure that they’re working with investment-agnostic providers.”

Advisers can also help sponsors determine the best way to benchmark and evaluate new products entering the market thanks to the passage of the Setting Every Community Up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022. Those products include in-plan annuities, savings accounts and student loan matches. 

Even if a sponsor client is happy with its current vendors and conducts regular benchmarking, Petty recommends having it go to market every five or seven years to get formal bids for comparison with regional peers. “We think that’s in line with what the regulators want to see—that the cost of the sponsor’s investments and service providers is competitive with [costs of companies in its] industry, or at least reasonable,” he says.