Do you need an investment life guard (ERISA 3 (38) investment manager)?


Does your investment guide give you a false sense of security?

It doesn’t seem to be wise to take on risks where there is no reward. Yet, if you are like most plan sponsors you are taking on the risk of investment selection and monitoring in your 401(k) plan. If you don’t have the time or knowledge to understand sharp ratio, revenue-sharing, passive and active investment strategies you may have hired a firm are several firms to do it for you. You may say that you transferred your risk by selecting a well-known investment or insurance company. Moreover, they may have told you that you have some kind of fiduciary warranty. Can you answer no to all of these risk questions?

  • Does your plan provider also sell investments?
  • If so, are they your default investment choice or represent the majority of investment choices?
  • Does the broker for your plan also work for the investment provider?
  • Do they provide you quarterly reports based on their proprietary analysis?

If not you are at a higher risk than those who could answer no to all.

Limit Your Risk with an ERISA 3 (38) Investment Manager

An ERISA section 3(38) Investment Manager allows you to delegate your responsibilities and personal liabilities to a firm that takes on the liability. Rather than be responsible for the entirety of your investment menu you have narrowed down your monitoring responsibility to one entity. You can hire a qualified investment advisor, that accepts fiduciary responsibility, to help you monitor the activities of your ERISA 3 (38) manager.

Recent trends in regulatory enforcement and ERISA litigation are leading plan sponsors to examine ways to shift or “outsource” fiduciary risk. The market losses of 2008 have served to underscore this risk, particularly as it relates to investment-related losses in participant accounts. As a result, increasing numbers of sophisticated plan sponsors are asking their advisors to serve as an ERISA 3(38) investment manager and/or conducting searches for those who do. A number of prominent ERISA attorneys attest to the validity of retaining an ERISA section 3(38) Investment Manager. These attorneys include James Baker of Winston and Strawn and Jason Roberts, of the Pension Resource Institute.

My buddy W. Scott Simon, JD, AIFA, has written extensively on the topic. He is the author of “The Prudent Investor Act: A Guide to Understanding,” and writes a monthly “Fiduciary Focus” column for Morningstar. An ERISA section 3(38)-defined “Investment Manager” accepts appointment from a plan sponsor as the plan fiduciary with sole responsibility (and liability) for selecting, monitoring and replacing the investment options offered in a qualified retirement plan. Once this is done properly via a contract, you no longer have any responsibility or liability for any investment mistakes that may be made by the 3(38) Investment Manager. Your do retain a residual duty to monitor the 3(38) Investment Manager.

Please email us if you are interested in being invited to one of our presentations on managing your risk.

(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. (2) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. (3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IN, IL, MI



About Envision Wealth Planning

I empower smart people to make smarter money choices that honor their personal values. After working together to develop a holistic plan, I help clients navigate the emotions and self-expression that can derail financial wellness. I use Financial Life Planning as a tool to propel client’s values, goals, and passions forward. I help clients figure out strategies to fund and maintain a sustainable retirement, plan for funding college, manage student loan debt, balance current lifestyle with savings goals, assist with financial planning during a divorce, and align values with your investments. I have an MBA from MIT Sloan. My financial designations include Certified Financial Planner (CFP®), Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst® and College Funding and Student Loan Advisor.
This entry was posted in 401k Monitoring, ERISA 3(38) Investment Manager, ERISA plan, Investment management, Investment Monitoring, Investment selection, Investments. Bookmark the permalink.

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