ERISA 3(38) Fiduciaries, Big Tuna, and Buying Groceries

Ary Rosenbaum

When the great Bill Parcells (go Big  Blue!) was the head coach of the New England Patriots, he got into a tiff with owner Robert Kraft because Parcells wanted more of a say in the personnel decision-making process. Parcells famously said: “They want you to cook the dinner; at least they ought to let you shop for some of the groceries. Okay?”  It sort of reminded me of my old law firm, where I was asked to feed people (by getting new clients) and I had someone who doesn’t cook (the Advertising Committee of one) tell me which ingredients I could use.

I admit it; I am more comfortable when I have control over things. When I have control, I succeed or fail based on my decisions instead of a bureaucracy that is less interested in my success and more interested in playing political games.

As someone who likes being in control, it should be no surprise that I like the proliferation of ERISA §3(38) fiduciaries and I think registered investment advisors (RIAs) who are interested in the retirement plan business should have the goal of offering it to some of their clients.

Once again, the use of ERISA §3(38) fiduciaries is a great fit for some plan sponsors who have none of the time or interest in keeping up their end in the fiduciary process of selecting plan investments and educating plan participants. The ERISA §3(38) fiduciary is a great solution for these type of plan sponsors because the fiduciary is defined as an “investment manager” under ERISA and assumes almost all of the liability (hiring a bad fiduciary is a breach of the plan sponsor’s fiduciary duty) of handling the investment decision making process.

I think advisors (as long as they are surrounded by a good team including a good ERISA attorney (cough, cough) ) should consider entering that space so that this solution could be offered as one of their services.

While some RIAs consider the liability aspect of it, the increased liability will always be offset by engaging in good processes (recording decisions, offering educating, memorialized investment choices in an investment policy statement) and by picking the right type of plan investments (most of these investment managers are using passive funds such as exchange traded funds, Dimensional Fund (DFA) and Vanguard index funds).

I always say that if you can’t do it right, don’t do it all. ERISA §3(38) fiduciaries should be for those RIAs that are serious about their trade as retirement plan financial advisors and should not be for those who don’t understand their roles as financial advisors for retirement plans. If you are serious about entering the space, speak to an ERISA attorney or speak to current ERISA §3(38) fiduciaries who partner with RIAs who don’t want to be in the space like James Holland at Millennium.

In addition, I will be making an announcement in the coming year on how I will be providing a bigger role for RIAs who want to be in this field.

As an ERISA §3(38) fiduciary, you get to buy the groceries and cook, the only thing to avoid is burning the meal.


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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Ary Rosenbaum

The Rosenbaum Law Firm P.C. on:

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