PLANADVISER - January/February 2019 - 24

don't know.' They realize that if they
hire a 3(38) investment manager,
they are removed from the ongoing
investment-decision process, which
not only decreases their fiduciary
liability, but frees up their time to
focus on their business. "
Plante Moran Financial Advisors
has offered plan-level 3(38) services
for about 10 years. " We have some
clients that really don't want the
fiduciary responsibility of making
those investment decisions, " says
Susan Shoemaker, partner and qualified
plan practice leader at the firm,
in Southfield, Michigan. " They are
saying to us, 'Make the decision, and
let us know why you're making the
decision, and that will work.' " Sponsors
of smaller plans especially feel
drawn to outsourcing that responsibility,
she adds.
If an adviser takes the time to
and it's more focused on participant
outcomes, " Friedman says.
" Now, instead
of always
being a plan's
investment
adviser in
those meetings,
we're more
balanced as
a specialized
clearly explain to sponsors the difference
in how much fiduciary responsibility
they retain with a 3(38) adviser
vs. with a 3(21) adviser, " they're going
to pick a 3(38) service 98% of the
time, " says Dick Friedman, a managing director at investment
manager IRON Financial LLC in Northbrook, Illinois.
retirement plan
adviser in a
consulting role. "
" When push comes to shove, they want to run their business.
They don't want to be the investment manager of
their 401(k) plan. "
But advisory firms keen to sign new clients sometimes
have overstated the legal benefits of hiring a 3(38), Hanna
says. " For a long time, it felt like the 3(38) service was oversold
by certain institutions or independent advisers, under
the guise of telling sponsors, 'We're going to take all of your
fiduciary responsibility away,' " he says. " What is accurate
is to say: 'We're going to take away your fiduciary liability
related specifically to investment selection and monitoring.
You still will have the fiduciary responsibility for other
aspects of the plan.' " This includes the responsibility of
selecting and monitoring the 3(38) adviser.
Plan advisers have begun seeing 3(38) investment
management as one of their key growth opportunities,
Edwards says. " That's where the money is. And this is where
the plan sponsor market is moving. " The market for traditional
plan advisory work has consolidated considerably,
he says. " There are fewer new DC plans being created, and
advisers basically are competing for the same number of
plans. So they are trading market share. "
IRON Financial is experiencing substantial growth in
its partnerships as a 3(38) investment manager with plan
advisers at other firms who prefer not to focus on investments.
" Ten years ago, being a plan adviser was all about
picking funds. Now the narrative has shifted dramatically,
" For these advisers, their value
proposition has shifted, " he continues.
" These advisers are saying to sponsors,
'Let me get your plan design set up for
the 21st century. We're also going to
hire a 3(38) fiduciary at the plan level
that will take the investment liability
off your shoulders. And I'm going to
help you monitor the 3(38) fiduciary,
to make sure they do what they say
they're going to do.' "
Service Model Implications
Intellicents gives sponsors
flexibility
to choose the fiduciary service
model they want, at both the plan and
participant levels, Arends says. Most
basically, the advisory firm can be a
plan-level 3(21) or 3(38) fiduciary and
not offer any employee education or
fiduciary advice. Or it can be a planlevel
3(21) or 3(38) fiduciary and also
do employee education that stops
short of the advice line. Or it can do
plan-level 3(21) or 3(38) work, as well
as participant education and one-onone
meetings in which it gives 3(21) fiduciary investment
advice or takes investment discretion over risk-based models
or custom target-date funds (TDFs) as a 3(38).
Taking on the investment-manager role does change an
adviser's service model somewhat. " In some sense, offering
a 3(38) service is a little easier, " Shoemaker says. " Our fund
lineup becomes more manageable, because we are not incorporating
'legacy' funds [such as a plan's longtime subpar
performers] when we're a 3(38). We also don't have to wait
for a plan committee to make a decision on a fund replacement,
which can take a long time, because they're busy. "
When it shifts from a 3(21) model to a 3(38) model with
a plan, Plante Moran then spends less time at committee
meetings covering a plan's investments. " We may have
historically spent a half-hour talking about investments,
and now that can be cut down to 10 or 15 minutes, " Shoemaker
says. " But we do provide them with all the same
backup reporting, so they have the due diligence they need. "
The move also means that advisers can shift the focus
to outcomes. For instance, devoting less time to investments
in committee meetings means Plante Moran can
spend more time talking about other important issues
such as participant demographics, plan design, communication
strategies and operations. " We can look more at the
overall success of the plan and how to make it the best it
can be under that plan's circumstances, " Shoemaker says.
" Most of the time, we don't reduce the number of meetings
with a sponsor. It's just the content of those meetings that
changes somewhat. "
22 | planadviser.com January-February 2019
http://www.planadviserdigital.com/planadviser/january_february_2019/TrackLink.action?pageName=22&exitLink=http%3A%2F%2Fplanadviser.com
PLANADVISER - January/February 2019

Table of Contents for the Digital Edition of PLANADVISER - January/February 2019
