Who does what tasks, and how does a plan sponsor know if the advisor with whom they partnered is truly a fiduciary in every sense of the word?
It’s an ongoing industry problem, one the Center for Board Certified Fiduciaries (CBCF) is looking to correct. On Thursday, the CBCF introduced the Fiduciary Oversight of Responsibilities and Tasks (FORT), a new 79-point checklist for professional and lay fiduciaries that clearly and comprehensively delineates the fiduciary responsibilities and tasks of a plan sponsor.
“When I first looked at the importance of FORT, my initial impression involved the concept of moral hazard,” Don Trone, CBCF’s CEO, explained. “Too often, we have retirement advisors telling plan sponsors, ‘If you hire me as a 3(16), 3(38) or whatever, then I’ll take care of your fiduciary responsibility.’ All too often, that’s not correct.”
When comparing what the typical advisor agrees to cover with the list of 79 tasks that the FORT includes, it’s only a fraction of the plan sponsor’s responsibilities, he added.
“In that sense, it’s a moral hazard,” Trone said. “In the plan sponsor’s mind, they’ve offloaded their fiduciary responsibility when, in fact, they have not. We see this confusion often in 401k lawsuit depositions.”
CBCF research finds 17.5 million lay fiduciaries in the United States; men, and women who have the legal responsibility for managing the assets of pension plans, foundations, endowments, health and welfare plans, and personal trusts. Three million lay fiduciaries manage $20 trillion in retirement plans.
These decision-makers generally come from outside the financial services industry and are often surprised to learn they are serving in a fiduciary capacity and have little, if any, training on what the law requires.
Lay fiduciaries don’t have to manage these assets by themselves—they can prudently select experts and delegate certain responsibilities. But often, there’s no bright line between the fiduciary responsibilities lay fiduciaries retain and the responsibilities that experts contractually assume.
How the FORT developed
“FORT grew from a decision to become a 402(a) fiduciary,” CBCF Chairman of the Board Don Jones recalled. “I decide to do it because if there is one thing you can do for the plan sponsor, it would be to grab the most difficult ring. I knew I didn’t know everything, but I knew more than they did. It took 4 ½ years before we said, ‘By golly, I think we have it,” which was a better checklist.'”
Jones then brought it into the Center and left it to Trevor Merrill, the new Curator at CBCF, to organize and package Jones’ vision into something actionable for other fiduciaries.
“We sit with the plan sponsor and committee and say, of the 79 items, “Who is responsible for, say, No. 18? Who’s responsible for No. 28?” Jones added. “We then add the date we believe the standard has been met for that particular item and certify it.”
The FORT specifics
Reviewing the checklist and deciding what can be retained by the plan sponsor versus delegated to outside service providers leads to four main categories contained in the FORT:
- Responsibilities the plan sponsor cannot outsource
- Delegating to a fiduciary service provider
- Delegating to nonfiduciary service providers
- Delegating the bulk of any other duties that were identified
“The FORT identifies the structure and fiduciary hierarchies within a plan,” Merrill said. “The is no mistake in who is responsible for what when you sit down with the FORT and all of the various service providers. It takes the ambiguity out of it and makes the operation of the plan more clear.”
Merrill also claimed the FORT can be introduced as evidence and is binding in a legal proceeding, something to which Trone and Jones agreed.
“At that point, the FORT becomes either a sword or a shield,” Trone said. “A sword is someone agreed to an item and didn’t execute, or a shield if someone said they would execute on a particular item and did.”
The Center’s mission is to educate and guide both investment professionals and lay fiduciaries, member Keith Gredys noted.
“They don’t know what they don’t know, so sometimes you have to do shock therapy and list all of the things that are involved when dealing with an ERISA plan,” he said. “You don’t want to scare them, but there is a lot of misinformation and misunderstandings out there about certain roles.”
The FORT can be obtained by contacting Don Trone and CBCF leadership at www.c-bcf.com. It will eventually be available in the website’s store and included in the DC plan CBCF curriculum.
“We see how important it would be for lay fiduciaries to apply it not just to the retirement plan, but to the endowment,” Founding CBCF Member Kathleen McBride, who is also a specialty leader for the organization’s foundation and endowments curriculum, concluded. “The clarity it brings is really phenomenal.”
The Board-Certified Fiduciary (BCF) is a professional mark awarded by the CBCF that recognizes an exemplary fiduciary leader’s knowledge, skills, work experience, and special expertise.
CBCF is a Public Benefit Corporation (PBC) founded and funded by fiduciary advocates. The CBCF will be affiliating with a leading university to provide a graduate-level certificate in fiduciary leadership, stewardship, and governance. Over time, CBCF will develop the curricula for the first masters with a concentration in fiduciary responsibility.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
