PLANADVISER - May/June 2019 - 13

When Sponsors Want a 3(38) Adviser
Establishing well-defined ground rules and procedures is key
PHIL EDWARDS is principal of Curcio
Webb, a firm that helps both defined
contribution (DC) and defined benefit
(DB) plan sponsors identify the
provider best-suited to handle their
outsourced 3(38) fiduciary investment
management.
Besides consulting with
plan
sponsors, says Edwards, a big part of
this business involves working with
plan advisers and other entities that
supplyEmployee Retirement Income
Security Act (ERISA) Section 3(38)
investment management services. He
says providers in this space regularly
re-evaluate their service models to
advance client outcomes and improve
their own returns, from a business
growth and efficiency perspective.
According
Compliance Officer and consultant
Elliot Raff, it is rare that a plan
sponsor client decides to go down the
3(38) investment outsourcing road
and totally misunderstands what it is
signing up for in terms of handing over
fund menu discretion. But there are
occasional misunderstandings about
the nitty-gritty details, which can be
unsettling for the client and adviser
alike. For this reason, Raff highly
recommends that advisers moving into
the 3(38) space put strong processes
and procedures in place-upfront-for
dealing with clients' concerns and questions
about their investment menus.
In their experience as 3(38) service
matchmakers, Edwards and Raff point
to two basic agenda items advisers
must fulfill at the start of this type
of relationship to prevent misunderstandings
and even potential compliance
lapses. The first and simpler of
the two is to describe, in sufficient and
written detail, all of the specific duties
and responsibilities they, as the 3(38)
provider, are taking on; also detail
in the same specific manner which
responsibilities will remain with the
plan sponsor client.
" We make sure to work with our
clients to go way down into the weeds
and create a very clear understanding
of who is responsible for what decisions
and on what
time frames, " Edwards
says. " That clarity is critical. Of course,
sometimes it's going to be an evolving
situation, especially with very large
plans that may decide to do almost
a trial period, where they delegate
increasing portions of
the responsibility
to the 3(38) provider over time as
confidence increases. This type of thing
should also be clarified. "
The second and more subtle agenda
item, he says, is to ask clients, " What
is the objective of the retirement plan,
and how will outsourcing the investment
management support that goal? "
" The adviser and the client must
to Curcio Web Chief
be able to answer the question: 'What
goals are you managing to, and how
TALKING POINTS
Realistic Expectations
Forty-four percent of American workers
who participate in a company-sponsored
retirement plan believe they will be
comfortable in retirement as long as
they spend carefully.
Source: Natixis
Millennials Attuned to Others
Of 2,000 Millennials surveyed, 83% who
have never invested said, if they did,
they would choose a company that is
ethical and socially responsible.
Source: OnePoll on behalf of Ally Financial
planadviser.com May-June 2019 | 13
will 3(38) service be beneficial?' "
Edwards says. " This is important for
DC plans but especially for DB plans
that are bringing in an outsourced
chief investment officer [OCIO]. DC
plans have a more straightforward
and open-ended objective of growing
participant accounts, while DB plans
have much more variability in terms of
time horizons and goals. "
Raff also emphasizes making sure
that plan sponsor clients know the
retirement plan committee must still
remain highly active.
" Plan sponsors must take as much
time as necessary to understand
these issues, " Raff says. " Advisers can
help guide them by asking, 'What are
the functions you want to hold onto?
What functions are you comfortable
handing over?' " -John Manganaro
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PLANADVISER - May/June 2019

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