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Fiduciary Review of Investments

Fiduciary responsibilities are often overlooked and underappreciated, and in-house executives and employees at your company tasked to watch over the company retirement plan may lack the qualifications to fully perform in a fiduciary role(s).

That’s why when it comes to your obligations as a trustee, it’s a good idea to discuss bringing on fiduciary support for both your investments (a 3(21) fiduciary) and plan administration (a 3(16) fiduciary). If you’re busy running a business, you probably don’t have time to become an investment or retirement plan expert, so here’s what to look for when hiring outside expertise.

3(21) Fiduciary

Think of a 3(21) fiduciary as professional support managing the investments and costs associated with managing your company retirement plan. An experienced 3(21) fiduciary can help create processes and procedures for many items related to the annual oversight of your plan. Digging in more specifically, below is a list of responsibilities that should be included for a 3(21):

  • Running reports quarterly to benchmark investment performance to the plan’s Investment Policy Statement to check data such as:
    • Performance of the fund to its benchmark
    • Performance of the fund to its peer group investments
    • Investment risk relative to the fund return
    • Manager tenure/transition of the fund
    • Investment expenses of your funds compared to peer group
    • If a fund did not perform well, provide documentation of this and report a plan of action (if any) to make changes
  • Reviewing the platform expenses of your retirement plan
    • The institution that record keeps and holds the assets charges a plan fee that is hard to see easily
    • Quite often platform fees are set at a certain level and are not repriced as the plan asset grows over time which necessitates the need for regular check ins to ensure best pricing for a company retirement plan
    • The third-party administration services can be bundled or unbundled and should be checked regularly to ensure it’s in line with the plan size.
    • Investment advisor fees should go down as plan assets rise, and plan fiduciaries must check up on this regularly.

3(16) Fiduciary

The process of managing a business and focusing on employee satisfaction, client experience and profitability is greater than a full-time job. Managing a retirement plan is outside the normal scope of running a business and likely not an area of focus for those that sign the annual plan 5500. Yet, annual audit requirements, checking annual contributions, managing compliance testing results, reviewing plan forfeiture account balances and periodic checking and review of all plan returns and expenses is another full-time job and responsibility.

For that reason, there are fiduciary support services that are available to help plan trustees meet these responsibilities annually without having to tax the already busy schedule of the business owner and key executives tasked with managing the company retirement plan.

A well-selected 3(16) can alleviate the annual responsibility and workload of managing a retirement plan by approximately 95%. Yet, selecting the proper platform can be tricky and not all 3(16) fiduciary services are created equal. Just like making any major decision for your business, best practices are:

  • Shop 3(16) services
  • Compare services
  • Compare costs
  • Make an informed decision based on the true needs of your specific organization

Note: 3(16) services are an added cost paid normally by the plan participants. Our recommendation would be to thoroughly uncover all plan fees and costs, negotiate the prices down accordingly and hopefully add 3(16) while reducing other costs to perhaps make the addition a net neutral or better to those people in the plan.

If you think you could benefit from having added fiduciary support, let us know. Our professionals help clients in a variety of industries including constructiondealershipsrestaurantstechnology and more. Our firm acts as 3(21) fiduciaries for our client retirement plans through our investment arm Henry+Horne Wealth Management and we can take you through the process of finding, selecting and implementing the right 3(16) fiduciary services to help with managing your plan on an annual basis.

Michael Carlin, AIF®

Michael Carlin, AIF®, is the President and Founder of Henry+Horne Wealth Management. He can be reached at (480) 483-3489 or MichaelC@hh-wm.com.

© 2019 Henry+Horne Wealth Management, 7098 E. Cochise Road, Suite 222 Scottsdale, AZ 85253

Securities offered through Independent Financial Group, LLC (“IFG”), member FINRA/SIPC. Advisory services offered through Wealth Management, LLC, d/b/a Henry+Horne Wealth Management (“HHWM”), a registered investment advisor. HHWM and IFG are separate and unrelated entities. Henry+Horne and Henry+Horne Wealth Management LLC are separate entities.

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