You became a financial advisor because you want to help people. Luckily, your business owner clients have a lot of things that they need help with. One of their biggest issues is usually their company-sponsored retirement plan.
There are so many things that go into sponsoring a retirement plan, from investment options to administration, that it can be hard to know where to start. Where can you provide the most value for your clients? What is the one thing you can do to most ease their burdens? To start, you need to know what their burdens are.
ERISA Fiduciary Duties
When your client chose to sponsor a retirement plan, they became a fiduciary of that plan. You likely are already familiar with the term fiduciary, someone who has a legal obligation to act in another’s best interest. However, under the Employee Retirement Income Security Act (ERISA), there is more to being a fiduciary than what the average advisor is familiar with.
Under ERISA, there are named fiduciaries and functional fiduciaries. Your client is a named fiduciary because they are sponsoring the plan and named in the plan documents. Named fiduciaries always have legal liability under ERISA, but then can lessen it by delegating some of their responsibilities.
Plan sponsors can delegate to functional fiduciaries, who take on fiduciary responsibilities and the accompanying legal liability even though they are not specifically named in the plan documents. There are three different kinds of functional fiduciaries under ERISA:
- 3(16) fiduciaries help with plan administration, such as reporting and disclosure.
- 3(21) fiduciaries are paid to provide investment advice but are not the ones that make the final investment decisions.
- 3(38) fiduciaries have discretion over plan management or control of its assets and make the investment decisions.
Common Plan Sponsor Struggles
Oftentimes, a plan sponsor will hire an investment advisor to help with their retirement plan and try to do the administration themselves. Perhaps you already are the investment advisor for their plan. It is easy for a business owner to realize that they need help with investments, but many don’t realize how much of a challenge it is to administer the plan.
ERISA is a complex law and there are a lot of requirements in order to run a plan well and maintain compliance. Business owners and their Human Resources staff usually only have a basic understanding of what is required to run a plan and little time or interest to learn more. This can lead to everything from feelings of stress and being overwhelmed to making costly mistakes that impact the bottom line.
Administering a retirement plan is often one of the biggest headaches and pain points that business owners face. Because of this, one of the best ways that advisors help their business owner clients is by recommending outsourcing 3(16) fiduciary responsibilities. Instead of trying to train them to do something they don’t like, why not help them take it off their plate completely?
How To Outsource 3(16) Fiduciary Responsibilities
Many advisors and their clients don’t even realize that 3(16) fiduciary responsibilities can be outsourced. Yet they can. Every day I partner with financial advisors just like you to help their clients take on both the responsibilities and legal liability of implementing their retirement plan. If you want to help your clients with their retirement plans, email me today at firstname.lastname@example.org to discuss how we can work together to do just that.
About Kenny Phan
Kenny Phan is a Managing Partner/Pension Consultant at FinancialFocus Retirement Plan Services. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses around the nation, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.