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IRA Distribution Strategies Expert


Accredited Investment Fiduciary - AIF®


The role of a fiduciary is an important one and one that many employers do not fully understand. Managing your fiduciary responsibilites requires some specialized knowledge which is why most plan sponsors hire qualified advisors to help them. Ultimately the road to protecting yourself is primarily about process. Remember these words: If it isn't documented it didn't happen.

What is a fiduciary? A plan fiduciary is anyone that exercises control over the plan and/or plan assets. Do you decide or are you part of a committee that decides which plan service providers to employ? Do you decide which investment options are offered in the plan? Do you make decisions as to how reasonable the fees charged to the plan are? If the answer to any of these questions is “yes” then you are a plan fiduciary.

What are the duties of a fiduciary? “A fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries “ (section 404 of ERISA). A fiduciary must execute these duties in a manner consistent with that of a “prudent expert”. The prudent expert standard is higher than a normal prudent man rule—which is what would an average person do. Plan decisions must meet the test of what an expert in the field would do. The role of a fiduciary is a serious one. A breach in fiduciary duty can result in personal financial liability.

Can I hand off these duties? Many consultants and sales people mistakenly suggest that a plan sponsor can shield themselves from fiduciary duties and liabilities by hiring outside trustees and advisors. The truth is that anyone who exercises control over the plan is a fiduciary and is potentially liable for breaches in fiduciary duties. Advisors must be chosen by someone. That someone is a fiduciary. This responsibility cannot be handed off to some other entity though you can have co-fiduciaries. Certainly hiring qualified advisors is advisable—perhaps even required if the fiduciary does not have the level of experience necessary to satisfy the “prudent expert” standard.

Recent changes to retirement plan law now allow the plan to hire a discretionary fiduciary advisor who would select and monitor plan investments and even direct participant accounts for those who elect to have the advisor do so. Though monitoring the advisor is still the duty of the plan fiduciary(s) liability for the decisions the advisors makes would not flow through to the plan fiduciary but few employers wnat to relinquish control of the plan's investments.

408(b)2 disclosure rules require investment advisors servicing plans to state in writting whether they are acting in a fiduciary capacity or not. In the past broker representatives and insurance agents could avoid answering this question. Given the compensation structure of many plans there were inherent conflicts of interest that if the advisor was a fiduciary might cause a prohibited transaction (not good).

There is some question whether brokerage firms and insurance companies will allow their representative to take on a fiduciary role, particilarly if these representatives are now specialists. Either way all advisors must either accept a fiduciary role or essentially say that the advice the provide could be influenced by a promise of finders fees or higher commission rates that benefit the advisor rather than the plan participants.

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