Not all 3(38) Fiduciaries are alike


ERISA §3(38) investment managers has been a hot topic in the marketing of retirement plan providers and for the most part, it’s a good thing because plan sponsors who have no time to handle the fiduciary process of their plan can have someone else do it for them.

The problem is that there is no requirements to be an ERISA §(3)(38) advisor as long as the advisor is a registered investment advisor, bank, or trust. So someone without any retirement plans on the books can simply prop a sign on their lawn and proclaim themselves as one.

In addition, there are §3(38) advisors that you have to question their independence. That could be the popular investment manager who has become the McDonalds of 3(38)s by providing that service for 5 basis points, but being promoted by a third party administrator. Where is the independence?

I even just hear about an ERISA §3(38) investment manager who will charge nothing as long as the plan invests a portion of their assets in the managed accounts they offer. Where is the independence? Isn’t this no-fee service (but charging a back end fee) what we have all tried to avoid since fee disclosure was implemented.

A plan sponsors needs to know that §3(38) should stand for something more than a number. They need to hire an investment manager that is competent and independent.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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