PLANADVISER - March/April 2018 - 46

practice management
says Bill Beardsley, senior vice president, retirement plan
consulting with LPL, in Chicago. " In the under $5 million
plan space, traditionally that is more of a wealth adviserdriven
marketplace, because the advisers are working with
business owners who also want the advisers to handle their
company's retirement plan. Many of those advisers want
to leverage LPL's capabilities and research in a centrally
managed solution. " As of mid-February, 267 plans utilized
Small Market Solution.
" LPL Research is selecting and monitoring the investments, "
Beardsley says. He adds that the investment
managers chosen agree to treat Small Market Solution assets
as a single asset base for fee purposes, which brings fee efficiencies.
In centralizing small-market 3(38) work, LPL
wants to provide a " turnkey solution " for advisers,
he says. " It frees advisers up to grow their business,
to spend more time with clients, and
to do more of what sponsors hire them
for-provide coaching and assistance in
growing their 401(k) plans, " he says.
Meanwhile, retirement specialist
advisers at LPL have long been doing largermarket
3(38) work. LPL has 1,650 such
advisers in its Retirement Plan Consulting
(RPC) program who serve as a 3(21) fiduciary,
and some also handle 3(38) work, Beardsley
says. " Specialist advisers are leveraging our
research capabilities and our technology, " he says, but the
advisers take on discretion and do the investment selection.
" These advisers already have built up a specialty in investment
management and a capability in that space, " he adds.
The Outsourcing Option
Some advisers see outsourcing 3(38) work to a third-party
provider as their best option. " Especially with all the heightened
attention on fiduciary responsibilities and need for
these investments to be actively monitored, if you are not
doing 100 plans or more, and plan work isn't your core business,
advisers tend to outsource that function, " says Babu
Sivadasan, group president of Envestnet Retirement Solutions
in Chicago; the firm's Fiduciary Advantage service
takes on 3(38) outsourcing. " Those advisers would rather
rely on an established, large fiduciary team, " he says.
Envestnet does business with some of the nation's
largest registered investment advisers (RIAs), Sivadasan
says, but those professionals generally serve as the 3(38)
fiduciary and simply adopt Envestnet's technology, such as
compliance software. Smaller advisory firms sometimes
outsource a part of their book of plan business to Envestnet
for 3(38) services, while keeping larger-plan 3(38) work
themselves. " That's where we get a lot of traction, " he says.
" We're playing in the small- to midsize-plan marketplace. "
When it handles the investment management role,
Envestnet takes on 3(38) status in a contract with the
sponsor, and the sponsor pays for its services. " The adviser
is the 3(21) fiduciary who initially recommends an investment
lineup, " Sivadasan says. Envestnet evaluates that
lineup, and " as long as all the recommended investments
pass our screening process, we are comfortable managing
the lineup from there. Then we monitor the investments,
and, if we take any actions on [them], we communicate that
to the sponsor through the adviser. "
Mesirow Financial takes on 3(38) outsourcing, as well,
and finds that advisers have differing motivations depending
on their market niche. Mesirow's 3(38) Fiduciary Partnership
services appeal most often to generalist advisers who
understand how risky it could be for them to tackle that
work themselves, says the firm's senior managing director,
Michael Annin, also in Chicago. " I think that a generalist
adviser working with a small plan, without some sort of
fiduciary backup, is even more dangerous than before the
new fiduciary rules. So they either have to rely on
something that their firm provides or something
that a company like us provides, " he says.
Specialist advisers turn to Mesirow more
often because they want to outsource the
3(38) work for their smaller plan clients,
Annin says.
Mesirow has very limited interaction with
plan sponsors when it assumes the 3(38) role,
Annin says. " We are the 3(38) fiduciary, so
we're responsible for selecting and monitoring
the investment lineup, and we have discretion on
investments, " he says. " But there is still a big role for
the adviser to play, helping the plan sponsor decide on the
appropriate investment lineup for their plan population. "
Currently, almost all of Mesirow's 3(38) work for plans
originates through recordkeepers, Annin says. But he thinks
his firm may soon start to establish outsourcing relationships
with broker/dealers. " Many broker/dealers are trying
to launch their own fiduciary services, " he says. " They're
finding that these programs are more difficult to administer
than they initially thought. So broker/dealers are trying to
sort this out, and there are a lot of conversations going on
right now. " -Judy Ward
KEY TAKEAWAYS
* Only 17.9% of plans of all sizes use 3(38) fiduciary
services, according to the 2017 PLANSPONSOR Defined
Contribution Survey, but some ERISA attorneys recommend
that large retirement plans, especially, consider
using them.
* Small plans generally are unaware of 3(38) services,
and advisers are increasingly considering how to integrate
such services into their business.
* Some advisory practices and B/Ds centralize 3(38)
services in the home office, while other advisers turn
to third-party 3(38) providers so they can focus on
growing their business and providing other services to
their plan sponsor clients.
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PLANADVISER - March/April 2018

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