"Action is the foundational key to all success." - Pablo Picasso
Back in 2008 when I wrote Fixing the 401(k), serving as an ERISA 3(21) or 3(38) was still a differentiator for an advisory firm. Most plan sponsors were still hiring and working with non-fiduciary brokers and consultants and conversations about fiduciary governance, sound process and best practices were unique.
Back then it was easy to tell a different story although its uniqueness often made it difficult for plan sponsors to truly grasp. I distinctly remember one prospective client saying to me "you keep talking about all this process stuff that I don't really understand or care about but everyone else I'm talking to is telling me about products - can't you just recommend which product I should use?" Needless to say I never felt like that guy "got it" and we never got the business.
Fast forward to today and plan sponsors have certainly gotten smarter and more knowledgeable about what to look for when hiring a 401(k) advisor - the rise of the "specialist" is well documented.
One of the most common questions plan sponsors are now asking advisors is whether they will acknowledge fiduciary responsibility. While this is certainly an important question, too many plan sponsors simply "check the box" with the answer. Nowadays, being a fiduciary is no longer a differentiator or competitive advantage, nor does it signify whether the advisor (or firm) is truly a specialist. Acknowledging fiduciary responsibility is both easy (simply spell it out in your advisory agreement) and a requirement to even get an invite to the dance when competing for legitimate 401(k) opportunities.
I believe plan sponsors, to prudently fulfill their duties when hiring an advisor, need to dig deeper and ask better questions. That's because being a fiduciary is not simply a noun (who you are). Instead (and more importantly), being a fiduciary is a verb - it's what you DO that actually matters. Rather than simply asking prospective advisors if they are willing to accept fiduciary responsibility for their advice, plan sponsors would be well-served to ask questions to determine what qualifies the potential advisor to be the most capable fiduciary to their plan and their participants. Here's a few questions you can ask your current (or prospective) advisor to get you started:
- How long have you and your team served as a fiduciary to corporate retirement plans?
- How many corporate retirement plans do you and your team personally serve in a fiduciary capacity?
- What is the total amount of corporate retirement plan assets you and your team currently advise in a fiduciary capacity?
- Do you serve as a fiduciary to just some of the plans you work with or all of the plans? If not all, why?
- Will you serve as a fiduciary at both the plan-level and participant-level?
- What types of training have you received in fiduciary practices and principles?
- What are examples of thought leadership (e.g. books, white papers, speaking engagements, etc.) that you or members of your team have created that demonstrate expertise in fiduciary matters?
- What are examples of proprietary tools or resources that you or members of your team have created that will help us manage the fiduciary governance process?