So You Want to be an ERISA §3(38) Fiduciary?


When I was in the second grade, my parents carpooled with another family who owned a struggling greeting cards store in Brooklyn. I enjoyed the carpool; where else could I get free packs of Superman and Moonraker trading cards? What I didn’t know at the time was that this greeting card store started to add a new line of revenue in 1979, renting something called video tapes. My folks bought their first VCR from them, spending $700 and getting a free lifetime membership to the video rental club (yes, in 1982, video rental stores charged for membership). Slowly, but surely, the greeting card store lost space to the video rental side of the business until they no longer sold greeting cards, that was 1985. After they had started their video rental business, they made a killing, and then everyone else came in to the point that there seemed to be a video rental store on every block. Then Blockbuster Video came and video tapes were priced for consumer sales killing the small video rental stores. Thankfully, this family cashed out before they would have been put out of business. The rule of business here is that the people first to the market make money and everyone who comes after usually gets killed.

One of the biggest crazes out there in the retirement plan financial advisor space is the ERISA §3(38) solution, where the advisor either serves as a §(3)(38) fiduciary or works in tandem with one. Many advisors are rushing into the space because they don’t want to be like the folks who rushed into the video rental store business too late. So while the proliferation of the use of ERISA §3(38) fiduciaries is a positive step, there are many questions regarding it and whether it’s s a true fit for both plan sponsors and financial advisors. The popularity of the ERISA §3(38) fiduciary solution does have one caveat, it will bring many financial advisors touting their role as an ERISA §3(38) fiduciary who don’t have the background or experience in being one. This article will serve as an introduction to the role of an ERISA §3(38) fiduciary and whether it is a right fit for the financial advisor interested in becoming one.

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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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