Retirement plan sponsors face increasing regulatory scrutiny and significant liability as plan fiduciaries. Can you leverage off these fiduciary concerns and generate advisory business for your firm?
There are a couple of key approaches you can use to address sponsors’ concerns about their fiduciary responsibilities and sell to the plans and their sponsors.
Add Value for Fiduciaries
Retirement plan fiduciaries are required to expertly manage the plan. The problem is that most plan sponsors aren’t experts. In fact, some sponsors may not be aware of the full extent of their duty to plan participants. The good news for plan sponsors is that, instead of becoming an expert themselves, they can delegate their management duties to someone who is already an expert.
Believe it or not, there are a number of plans that don’t use an advisor—with the plan sponsor choosing to go it alone to save a few dollars. As reported in a previous edition of the Advisor’s Journal, a significant of number of employee retirement plans (19%) don’t use an outside investment advisor. If you and your firm have the infrastructure to act as an outside advisor to a plan, and the plan and its sponsor are willing to foot the bill, you can take the fiduciary burden from the plan sponsor’s shoulders. Of course, that means you’ll be taking on that burden yourself.
For sponsors who choose to manage the plan themselves, the cost of going it alone can overwhelm any savings on advisory fees, as illustrated by recent litigation against plan sponsors.
The Significant Threats to Plan Sponsors
Recent lawsuits involving a plan sponsor’s breach of fiduciary duty demonstrate the high cost of inexpert plan management. Are your plan sponsor clients or prospects aware of these costly lawsuits? For example, Bechtel reached an $18.5 million settlement in a suit charging the plan with failing to keep plan costs down by leveraging the size of its plan to get a better deal from vendors. The settlement forced Bechtel to seek outside investment management for at least three years. Undoubtedly, Bechtel would have saved significantly had it used an outside investment advisor’s services in the first instance.