Benefit Four: Fiduciary Liability Protection

Investment providers – including insurance companies, fund companies, banks and brokerage firms frequently muddy the water when it comes to defining the role of a “fiduciary.”  In fact, there are a variety of functional fiduciaries in the operation of a qualified retirement plan. In the area of investments, however, there are two distinct types of fiduciary advisors:

ERISA 3(21) Advisor

Serves as a consultant, making recommendations and suggestions, but does not assume the liability for managing the plan’s assets.

ERISA 3(38) Advisor

Assumes discretion, and therefore the liability, for managing the plan’s assets.

The essence of the difference between these two designations is that a 3(21) advisor makes recommendations and a 3(38) manager makes decisions. So, if a plan sponsor wants to retain the responsibility for investment selection and monitoring, hiring a 3(21) investment advisor can be part of a prudent fiduciary process. But if a plan sponsor wants to be insulated from the responsibility and liability for investment selection and monitoring, then a 3(38) investment manager should be engaged.

Most providers in the 401k, 403b, and 457 industry do not act as either a 3(21) advisor or 3(38) advisor. That means the liability for selecting investments, monitoring their performance, deciding when to make changes, and communicating those changes to your participants, rests squarely on the plan sponsor’s shoulders. Even if a provider gives you a list of preferred or recommended funds, the decision-making liability still rests with the plan sponsor. And very rarely is an advisor willing to assume the liability for both monitoring the plan and managing the plan’s assets.

With Advisors Access platform , we can bring both 3(21) and 3(38) fiduciary service to your plan. We accept these roles in writing, assuring your plan’s trustees a critical measure of liability protection.

Benefit Five