O'Reilly Wealth AdvisorsInaugural Prudent 401(k) Fiduciary NewsletterGreetings!Welcome to our inaugural issue!In these newsletters, we will expose the myths about 401(k) Plans.Does your 401(k) Plan have an ERISA Section 3(38) fiduciary?In our first article, you'll learn more about Plan Sponsors delegating investment decisions to an ERISA 3(38) fiduciary advisor. You might want to click on the article, "Prudent Fiduciary Part 1", to the right, and come back to this introduction once you've read the first article.What are the ERISA 3(38)-advised plan benefits?Complete fee transparencyFar less fiduciary liability on plan overseersMuch higher quality investment vehiclesAdvisor-managed portfoliosBuilt-in checks and balances due to the independence of the team members.No mutual fund 12b-1 fee-sharing (and the resulting conflicts-of-interest & lack of transparency)The most significant improvements available to be made to 401(k) plans cannot be made without moving to an ERISA Section 3(38)-advised plan. At the end of this introduction we reveal how to find out if you have a 3(38)-advised plan. (It is highly unlikely.)Why are there so few 3(38)-advised plans? Because mainstream providers are making plenty of money without having to take on the increased fiduciary responsibility.Bundled 401(k) plans that dominate the 401(k) market have fewer and in some cases NO checks and balances.In our 3(38)-advised plans - O'Reilly Wealth Advisors is an independent 3(21) fiduciary, Advisors Access is an independent 3(38) fiduciary, McCready & Keene is an independent TPA/record-keeper that will not accept 12b-1 revenue streams and TD Ameritrade is an independent custodian with strict fiduciary requirements. Checks & balances are built into our plans.To get started, call us for a no-obligation 401(k) health check-up conducted by independent 3(21) and 3(38) registered investment advisor fiduciaries. Valued at thousands of dollars and takes just a few weeks from start to finish. To take advantage, just e-mail or give us a call, john@oreillywa.com or 760-804-0910.Next issue's introduction will include a few examples of how the mainstream 401(k) providers often mislead by using the word "fiduciary" extensively while not actually taking on any fiduciary liability.Does your plan have an ERISA Section 3(38) fiduciary? Please make sure your request is specific and includes a deadline; "Please give us a signed letter, on your letterhead stating that you take on ERISA Section 3(38) fiduciary liability." The answer is unlikely to be "yes" - but if it is and you get the letter confirming -- we want to be the first to congratulate you! Good job!Prudent Fiduciary Part IScott Pritchard | Managing Director, Advisors AccessA look at the major issues that are shaping fiduciary best practices today.First, let me say that I am not an attorney. So, as I wade into interpretation of ERISA, I gratefully acknowledge my reliance on the previous work and wise counsel of numerous ERISA attorneys who have been kind enough to share their opinions with me.With that disclosure, I will attempt to shed light in a two-part series on an issue that is receiving an increasing amount of attention in the 401(k) marketplace: The roles of ERISA section 3(21) fiduciary investment advisors and section 3(38) fiduciary investment managers.The growing awareness of these roles seems to be driven by two key factors:Numerous 401(k) lawsuits over the past few years have made plan sponsors increasingly aware of their fiduciary responsibility and liability, which they are now keenly interested in limiting.The investment industry is aware of this growing concern and is seeking to capitalize on the "fiduciary" business opportunity.While ERISA has always defined the various roles of fiduciaries to retirement plans, most industry practitioners have simply not been aware of the finer points and how those can benefit plan sponsors and participants. Now, however, as more plan sponsors seek out the services of fiduciaries, Wall Street is increasingly marketing itself as such, especially under the "co-fiduciary" label. So it is imperative that plan sponsors, and those that advise plan sponsors, understand the key differences between the various fiduciary roles.There are a variety of functional fiduciaries in the operation of a qualified retirement plan, including the plan administrator, trustee(s) and members of the investment/benefits committee. Our focus here, however, will be on clarifying the roles of "Investment Advisor" and "Investment Manager."In a white paper commissioned by SageView Advisory Group, attorneys Fred Reish and Joe Faucher of the Reish & Reicher law firm explained the 3(21) Investment Advisor and 3(38) Investment Manager roles this way:Where committee members lack the needed technical knowledge to properly select the investments, they are required to hire knowledgeable advisers. In ERISA, those investment advisers are sometimes referred to as section 3(21) fiduciary investment advisers. However, while the use of knowledgeable advisers is evidence of a prudent process (particularly if the adviser is independent), the committee continues to be the primary investment fiduciary. As a result, it remains the primary "target" for plaintiffs' attorneys and the U.S. Department of Labor (DOL).Where committee members desire additional protection, they should consider appointing a discretionary investment manager to select and monitor the investments. In ERISA, those discretionary managers are referred to as 3(38) fiduciaries. Appointing an investment manager insulates the fiduciaries against losses (or inadequate gains) arising out of claims that the investments were not appropriate or prudent. Fiduciaries who appoint an investment manager to control the selection and monitoring of the plan's investments are responsible only for the prudent selection and monitoring of the investment manager which, for attentive fiduciaries, is a manageable task.The essence of the difference between these two designations is that a 3(21) advisor makes recommendations and a 3(38) manager makes decisions.So, if a plan sponsor wants to retain the responsibility for investment selection and monitoring, hiring a 3(21) investment advisor can be part of a prudent fiduciary process. But if a plan sponsor wants to be insulated from the responsibility and liability for investment selection and monitoring, then a 3(38) investment manager should be engaged.Most groups holding themselves out as "investment advisors" in the 401(k) industry are operating as 3(21) advisors (if, indeed, they are acting as fiduciaries at all.) The 3(38) manager designation requires a greater level of fiduciary responsibility, and only a minority of firms are willing to accept the increased liability that comes with the 3(38) designation.In Part II, I will provide guidance on how to identify what type of fiduciary you may be working with now.Edit ImagePhantom FiduciariesBy W. Scott SimonClick on the link to find another article on the same topic. W. Scott Simon is a prolific writer on this topic.http://www.morningstaradvisor.com/articles/article.asp?docId=4432(if necessary, past this link to your browser)In This IssuePrudent Fiduciary Part 1Phantom FiduciariesJoin Our Mailing ListJohn O'ReillyO'Reilly Wealth Advisors
John O'ReillyO'Reilly Wealth Advisors