Any advisor who isn’t intimately familiar with (at least) the term “fiduciary” has been living under a rock on a mountain on the Moon.
DOL or not, it’s everywhere, and advisors and sponsors are increasingly exposed.
Service providers that, for a fee, take on some of that heat are nothing new, but the flexibility and scalability they now provide more closely match the unique needs of the partners they serve.
One such service, FiduciaryShield, “is focused on helping advisors and sponsors design better plans while reducing costs, liability, and work by having a true outsourced administrative fiduciary,” founder and CEO Derek Williams says.
It was built by advisors for advisors, the Florida-based RIA says, giving it added credibility.
“As we continue to grow our retirement plan business, we wanted to, like many advisors, really separate ourselves and focus on the highest level of fiduciary duty,” he explains. “That’s why FiduciaryShield was created. By putting the right team together we are able to focus not only on the prudent investment process but also what we call the ‘carve out.’ So many plan sponsors don’t understand that just because they were sold a 401k, the liability that falls on them is broader than just the investment piece; there’s also the administrative fiduciary duty. We don’t carve that out; we handle it as well.”
Williams sat with 401(k) Specialist for a wide-ranging discussion about fiduciary services, what needs to happen and how his firm is addressing it.
Q: So, what is FiduciaryShield—a 3(38), 3(21), something completely different?
A: It’s essentially an ERISA-consultant and provides plan design and then implementation. It’s a completely objective service that allows us not only to work with plan sponsors but also with advisors.
We found that many of the advisory firms, now that they have learned more about the process, don’t want to dabble in retirement plans. They can now utilize our services where we bring in a neutral, prudent 3(38) investment manager.
We serve as a 3(21) administrative fiduciary, so most of the time you’ll see that carved out in the contract, so they don’t absorb any of that liability. It falls back on the plan sponsor or the business owner, and we want to make sure that those businesses are taken care of and that conflicts-of-interest that arise are addressed.
Our mission is twofold: to provide the premiere 401(k) plan available, while at the same time reducing the liability of the plan sponsor and advisor by signing on as a named fiduciary to the plan. We coordinate the parties to deliver a truly objective service and avoid the conflicts of interest that arise in so many plans today.
Q: Somewhat leading question, but how much of a need is there for something like this?
A: We’re filling a gap that exists today. Even in so many of the plans that people are marketing that say, “We’ve come up with a solution and this is the way to immunize yourself,” they still leave the administrative part out.
Early on, we retained some of the best counsel available, attorney Tom Clark from Wagner Law Group.
What Tom and his team have done is to help us design the contracts/agreements that allow us to make good on our value proposition. Not only between us and the advisor and us and the plan sponsor, but more importantly between the advisor and the plan sponsor.
One of the things that we do for advisors that is somewhat unique is that we give them the ability to continue to be the relationship manager and focus on what they do best, providing plan education services.
Especially with small-to-midsize plans, the advisor relationship is a real key to how the plan is being delivered. We don’t take that out of the equation. So many of the online solutions remove the advisor completely. We think that that is not the right approach. We understand we are in the people business and we want to help everyone achieve their retirement goals.
Q: How do you scale it?
We’ve put together a hierarchy in our office, where we work with our plan design team, which in turn works with the advisor and the plan sponsor to make sure that the plan is properly reviewed and not just checked off a list from a TPA.
We learn more about the business on the front-end and have some proprietary tools and questions that we ask them to allow for proper plan design in each unique case. As we grow the business, each plan is provided their own dedicated consultant that essentially serves as an outsourced plan administrator. Their goal or role is to make sure the client’s HR department does not have the wrong people making those types of decisions.
It’s completely open-architecture, team-oriented, and by following our formula, yes, it’s completely scalable.
Q: What was the eureka moment for the model?
We’re built by advisors for advisors.
It started 22 years ago, when our advisory firm was essentially born out of a regional CPA firm. They also owned a pension company, where we paid close attention to how the inner workings were happening. A lot of the retirement plans, back in those days, were built on a hybrid chassis that included some brokerage relationships, which in turn offered a high level of revenue sharing. The more that we dug into it, and tried to help our clients, we realized that removing those conflicts of interest, disclosed or not, and providing full transparency was going to be a key to our success.
So many large players in the retirement industry still operate that way, but for them, change is like trying to turn the Titanic.
We were small and nimble and figured if we could build it from the ground up, we would be in a much better situation to begin to scale and grow and help others in the process.
Q: Is there still a large learning curve for plan sponsors and even advisors?
We are different and opening eyes to a new and better way to serve this market. So far, the advisors that have contacted us have had some level of training. Many are CFPs and CPAs that want to focus on what they do best, which is planning and education of how to use the 401(k) “tool” to optimize tax-deferred savings and attract and retain the best employees. We’ve had very few that are completely green—at this point.
What we hearing most is, “We’ve got a dozen or so 401(k) plans that we oversee and we don’t want to be dabbling in this space. We want this to be a profitable part of our business and make sure we’re doing this the right way for all parties.” With FiduciaryShield, instead of jettisoning that business, we are filling that gap for those practices.
At the same time, we have had some very large plans that have come to us recently, including 401(k), 401(a), 457, and cash balance plans. They have chosen to take the opportunity to learn more about our service. Even the largest companies are reviewing and benchmarking their plans, allowing us to support their in-house team with the highest level of expertise.
They might not want to fully outsource to a 3(16)-type service. Interestingly, that’s what Tom Clark calls us; even though we’re officially a 3(21) (A)(iii), we are a 3(16)-like service and essentially a co-fiduciary with them.
We’re making sure that all of those documented processes and checklists are being done and kept in a place. We go beyond the investment menu, investment policy statement, and investment committee to address the administrative duties, as well. If gaps still exist, you’re not immunized against fiduciary risk, and we want to be that immunization shot.
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.
