Caveat emptor is a common Latin phrase meaning “buyer beware.” Now that it appears that the decision striking down the Fiduciary Rule will not be appealed to the Supreme Court, plan fiduciaries should keep that warning in mind when dealing with anyone providing investment advice.
Smart fiduciaries will take it upon themselves to make sure they are getting outside investment advice from someone who puts the plan participants first and stands behind the advice, and won’t wait for the SEC or states to protect them.
The best advisers will:
- Acknowledge ERISA fiduciary status in writing. This is the highest fiduciary standard, and is separate from the standards that apply to registered investment advisers (“RIAs”). ERISA fiduciaries can be personally liable for losses caused by a breach of their responsibilities.
- Understand and communicate the rules that are back in effect. Brokers who give advice may not be subject to fiduciary standards at all. For example, under the so-called five-part test that applies now, one-time advice and advice that is not a primary basis for plan decisions is not fiduciary advice.
- Disclose their qualifications and experience with ERISA plans. Plan sponsors need an adviser who works with a lot of plans and understands prohibited transactions and current plan compliance issues.
- Attend plan sponsor clients’ Committee meetings and provide regular written reports giving the basis for recommendations.
- Be responsive. Don’t be someone who doesn’t return phone calls and just puts in an appearance once or twice a year.
- Inform clients about the procedures you have in place to avoid conflicted advice. Also fill clients in about fees. Is it a fixed amount or percentage that doesn’t vary depending on the investments the plan sponsor or plan participants select?
- Did you become a fiduciary solely to comply with the Fiduciary Rule? Let clients know if that has changed.
There are a lot of great fiduciary advisers out there who will help company fiduciaries fulfill their responsibilities and who hold themselves to the highest professional standards. Fiduciary Rule or no Fiduciary Rule, there is no reason for company fiduciaries to settle for conflicted or substandard advice. After all, as responsible fiduciaries, they will be left holding the bag if they follow bad advice.
Carol I. Buckmann is a partner with New York-based Cohen & Buckmann, P.C., an executive compensation, pensions, and benefits law firm.
Interesting article… A good start with the 7 characteristics, except we as Advisers need to farther than just “showing up.” Actual results for the employees is what ultimately matters most. The best Advisers are getting (and tracking) results of employees improving “on track” status. Advisers that are not equipped to deliver results really should not even be in this business.