ment only (DCIO) specialist team at New York Life/Main-Stay Investments, Jersey City, New Jersey, agrees that more
attention is clearly being paid to 3( 38) service opportunities. He says many clients would benefit from competitively
priced 3( 38) service, but it is not right for everyone.
“Given the current regulation and litigation pressure, it
is hard to argue that 3( 38) service is not emerging as the
next extra layer that you, as an adviser, can either provide
for your clients or source for your clients,” Blaze says.
“When we look at 3( 38) and talk about it with clients, we
feel it is important to label it as 3( 38) fiduciary investment
management. It is not really advising anymore. It is going
potentially far beyond the 3( 21) advisory service.”
Because of the extra risk involved, any advisers
currently offering or considering 3( 38) services should be
working closely with ERISA counsel to maintain pristine
recordkeeping and other process controls.
“If you are going to expand into offering or sourcing
3( 38) service, then trusted ERISA counsel is absolutely
essential,” Venuti says. “Not only does this help us really
understand our offering and what protections it is deliv-
ering to the client—we’ve also found that our counsel is
then a tremendous advocate when we go in front of clients
and talk about the additional fiduciary protection we can
offer via 3( 38).”
The experts stress it is key for clients to understand that
they maintain their fiduciary duty to monitor the 3( 38) service
provider. In other words, even full-fledged 3( 38) service does
not remove all liability from the plan sponsor client.
“There is still a duty on the part of the plan sponsor
to monitor for prudence and adherence to process,” warns
Jonathon Schultheiss, retirement plan adviser and partner
with Gate City Advisors, out of Greensboro, North Carolina. “We will sometimes see clients who think about it but
ultimately decide they do not want to go down the 3( 38)
route because they don’t want to hand over discretion. We
sometimes come across CIOs [chief investment officers] or
CFOs [chief financial officers] who raise an eyebrow at the
idea that the adviser would take on that role.”
Such clients believe the adviser should simply advise,
and the final investment decisions should be made by the
sponsor, Schultheiss says, “and that is fine for those clients.”
Other clients will hesitate because there is also pricing
to think about, the experts note. In general, the cost will be
greater for 3( 38) services because the adviser is taking on
more work and more risk.
No Single Favored Approach
Blaze observes that there is diversity in how advisers and
providers are structuring and delivering 3( 38) services.
“You have some advisers who act now as a 3( 21) or a
3( 38) through their respective registered investment advisory firms, and there are advisers who will utilize a partnership with a recordkeeping platform that has hired its
