Who or what is a fiduciary?
A fiduciary is a person who exercises any discretionary authority or control over the management of, in this case, retirement plan assets, or who is paid to give investment advice regarding plan assets. A fiduciary can be named in the plan document. In addition, a fiduciary becomes a fiduciary because of their actions, the functions they perform. So, it is common to be a fiduciary without a formal designation. People who perform ministerial functions are not fiduciaries. People who make decisions about the plan and plan assets usually are fiduciaries.
What are the duties of a fiduciary?
A fiduciary must discharge his (or her) duties solely in the interest of the participants and beneficiaries. He (or she) must do this for the exclusive purpose of providing benefits to them. And he (or she) must comply with the care, skill, prudence and diligence under the circumstances then prevailing of the traditional prudent person. (Donovan v. Bierwith, 680 F.2nd 263). In the context of investments, the fiduciary must employ proper methods to investigate, evaluate, and structure the investment; act in a manner as would others who have a capacity and familiarity with such matters; and exercise independent judgment when making investment decisions. (DiFelice v. U.S. Airways, Inc., 397 F. Supp. 2nd 758). This is also known as the "prudent expert" rule.
Can a fiduciary be personally liable for a breech of a fiduciary duty imposed by ERISA?
In a word, yes. If the fiduciary fails in his or her responsibility to carry out the duties, responsibilities, or obligations under ERISA, the fiduciary can be personally liable for reimbursing the plan for any losses resulting from their failure.
What actions can a fiduciary take to both comply with ERISA and limit their personal liabiltiy?
First and foremost, the fiduciary should take their duties very seriously. A prudent process for managing the plan is key. Secondly, the fiduciary should consider engaging the services of a "prudent expert" that is willing to accept co-fiduciary status. Third, the fiduciary should consider purchasing fiduciary insurance.
How is a retirement plan advisor compensated?
An advisor can either be paid from fees charged directly to the plan participants or plan sponsor, or from a portion of the investment management or servicing fee built into the pricing structure of a packaged product. In some cases, a combination of the methods may be used. You should expect your advisor to explain in detail how he or she gets paid and what functions will be performed to earn that compensation.
The real consulting firms charge only fees. How can you be an objective consultant if you get paid by the provider?
The fact is many consulting firms do get paid by providers, and high-end consultants may be worth every penny in complex or problem situations. However, they may also be prone to overstate the complexity to warrant their expertise and high fees. Raymond James retirement plan advisors have access to the same high-level consulting expertise, but you will only pay for it if necessary. We have access to a extremely qualified network of consultants and experts that can provide additional services as needed.
What about fees and expenses? Aren’t the fees higher if we use an advisor?
The fee structures in retirement plans can be very complex; however, like many other products and services, you often get what you pay for. There are certain providers that compete based on price and market their services directly to plan sponsors as avoiding the unnecessary cost of an advisor. Such an arrangement typically works only if the plan sponsor dedicates someone on the company payroll to certain plan functions…or the plan accepts less service. Typically these direct providers can not act as investment fiduciaries and could be conflicted in providing investment advice. Another aspect of cost is investment management. Again, certain providers compete on cost, but cheapest is rarely the best choice. Raymond James retirement plan advisors will provide you with all the information you will need to evaluate the costs of different providers.
Is online advice for retirement plan participants going to make personal contact with an advisor obsolete?
Just the opposite. Expert, knowledgeable retirement plan advisors embrace technology as a tool to help fulfill the role of advisor more effectively. We’ll be glad to discuss the different ways we use technology with both the plan sponsor and the plan participants. In addition, using an online advice program, separate from the financial advisor, avoids conflicts of interest and possible prohibited transaction issues, an ERISA violation. Of course, the financial advisor will continue to provide investment education services directly to participants.
Isn’t it true that you can only use “load” funds, or funds your company allows?
Raymond James has selling agreements with nearly 9,000 load and no-load funds, including proprietary funds of other investment brokerage firms. We do not use any proprietary Raymond James funds in the plan we advise on. Furthermore, our proprietary forward-looking mutual fund research process brings a completely objective perspective on how selected funds may perform in the future. One of the common misconceptions in the selection of a retirement plan service provider is that a “no-load” provider is less costly than a provider that builds the advisor’s fee into the package. The reality is that most of the no-load providers actually have classes of fund shares designed specifically for advisors, with compensation to the advisor built into the fund expense structure.
