Understanding the Role of a Fiduciary

Most financial advisors who truly care about their business-owning clients understand how important it is for companies to attract and keep top talent. They know a solid 401(k) plan is something employees want, and they know that small business owners can benefit greatly by offering a plan and taking part in it to prepare for their own retirement.

What many business owners fail to realize, though, is that offering a 401(k) comes with the heavy and very complicated responsibility of designing and maintaining a fully compliant plan. But there are alternatives as we’ll explain farther down in this article.

When an employer wants to offer a 401(k) plan, they must first learn all there is to know about designing a proper plan. Then they have to understand what is required of the company to keep the plan compliant. As well, they are responsible for keeping up with changes to the rules and ensuring that plan participants are getting value for the money they pay in fees.

If you think that’s a lot to do for a busy financial advisor or business owner, you’re right. And on top of that, overseeing a 401(k) plan opens a doorway to liability for the financial advisor and the plan sponsor who, in creating the plan, also becomes one of its fiduciaries.

This is where the most dedicated financial advisors and the most forward-looking business owners stumble because understanding who the fiduciaries are and what they are responsible for is crucial to plan administration. Sometimes even an employee can become a fiduciary without realizing it. This is especially common in small businesses where employees wear many hats.

To bring as much clarity as we can to this topic, first, we’ll go over what makes someone a fiduciary to a 401(k) plan.

A fiduciary:

  • Is named as a fiduciary in the document
  • Makes any management decisions about the 401(k) plan
  • Has authority over the plan or the administration
  • Aided in selecting the investments for the plan
  • Has a job title such as CEO, Director of HR, etc.
  • Is a committee member making decisions about the plan

Once you’ve identified the fiduciaries, they must understand their responsibilities to act in accordance with the plan documents, keep a record of any meetings and decisions made, develop a written procedure for regular decisions, and more.

It’s a lot, which is why some business owners choose an alternative path and hire outside fiduciaries to perform different tasks in an attempt to reduce liability to the business.

Examples of these outside sources are:

  • 3(16) Plan Administrator
  • Acts in accordance with the plan documents
  • Provides the necessary fee disclosures
  • 3(21) Administrator
  • Acts in accordance with the plan documents
  • Has the ability to hire and fire service providers
  • Provides compliance support
  • 3(38) Investment Manager
  • Selects, monitors, and updates the plan investments
  • Is a full fiduciary for the plan investments
  • Takes over the plan investments from the plan sponsor
  • 3(21) Investment Advisor
  • Advises on plan investments, though the plan sponsor doesn’t have to take the advice
  • Is co-fiduciary on plan investments

This piecemeal approach to hiring different people for the various roles in a plan can work. But it can also fail to remove a lot of the liability for the plan sponsor. The sponsor is still responsible for not only knowing all the compliance rules but also vetting these people and knowing what questions to ask them — and the right answers to those questions.

Solving this difficult problem that business owners face is what lies at the heart of FiduciaryShield. We saw the massive headache it is for them and even financial advisors to take on this highly complex task and have a chance of succeeding. We decided we could make life easier for both.

Think about it. Most businesses outsource other complex services like CPA, payroll, lawyers, etc. because it makes sense to hire an expert in an area so complex.

At FiduciaryShield, retirement plans are all we do. Our team knows every nuance of the rules and how to keep each plan fully compliant while offering the best possible options for plan sponsors and their employees. We take on the lion’s share of the risk and know how to properly manage plans so you can work on other things

In short, we do all the work, and you take all the credit.