More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Stadion Money Management, an asset manager based in Watkinsville, Ga., announced Tuesday that it is offering ERISA 3(38) fiduciary management on its target-date funds.
When plan sponsors choose the TDFs as the qualified default investment option in their plans, Stadion can serve as the fiduciary. The company has already provided such status in its separately managed accounts since 2002.
Stadion added ERISA 3(38) fiduciary status to its TDFs to provide a “parity of service,” Tim McCabe, senior vice president of sales and service, and head of the company's retirement offerings, told AdvisorOne on Thursday. The firm’s 100,000 managed account clients already had access to that kind of fiduciary protection. “It’s not the next evolution of the product. It’s the same product but in a different wrapper,” he added.
“Nobody else was offering these products,” McCabe (right) said, so the firm conferred with its outside counsel, Fred Reish, to determine whether they could. “All that was required was for the sponsor to sign a document to appoint us as the fiduciary,” he said.
“We’re the first in the pool, but I don’t think we’ll be the last,” he said. “As new regulations come out and advisors are prohibited from offering traditional services, other companies are going to step up.”
Plan sponsor advisors who have been fettered by new or upcoming regulations have found they’ve had to change their value proposition and are looking for products that have fiduciary protections built in, he said.
Clearly there is a demand for products with fiduciary protections. McCabe said that last year his firm added $900 million in retirement assets with 3(38) protection, either in TDFs or managed accounts. “The marketplace wants these products, and regulations will cause more impetus for them,” he said.
Assets in a 401(k) don’t belong to the participant until they take them out of the plan, McCabe said. “Sponsors have a responsibility for making sure participants make good decisions and advisors make sure the plan has good investments.”
Making the default investment in a plan a product with fiduciary protection helps both participants and sponsors. McCabe said 80% of their participants stay in the investment they are defaulted into. When that’s an age-appropriate account like a target-date or risk-based fund, participants are “going to get a better return over time and fiduciary protection gives sponsors and advisors peace of mind,” he added.
McCabe noted that in not everyone opts for the 3(38) TDF, foregoing fiduciary protection, but he said, “In many cases, those are more sophisticated investors. For those who aren’t, we have an 80%, 90%, sometimes 100% take rate” on the 3(38) TDFs. “Most participants aren’t comfortable making those decisions.”
Stadion started offering risk-based and target-date CITs two years ago with an emphasis on tactical management. “We can reduce equity exposure in difficult markets and increase it when markets are good,” he said. “This gets participants to the same place, but with less volatility.”