Action Can Reduce Fiduciary Risk When Stock Markets Swoon

Investment Process Focused on Risk Measurement...
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Every successful business plan involves the implementation of a strategic process. Your company’s retirement plan should be no different. Discipline and following a credible strategy are essential to meeting your and your employees goal of a successful retirement.

Fiduciaries and business owners already take enough risk elsewhere. In an environment that allows government protection by following a series of procedures and practicing due diligence, it makes no sense to place fiduciariesat added risk.Plan sponsors should review their investment policy statement for a quantitative approach to investment monitoring. A good rule of thumb is: If you can explain to a novice the criteria of “how and when” a fund is placed on a watch list, removed or replaced, your work is done.

The formula should be simple: for example, a scorecard of each investment based on distinct and unique criteria, including peer group comparisons of:

• Fees

Risk-adjusted performance

• Performance consistency

Fund manager value-add

Every quarter, the figures are formulated and the outcome is clear: A fund passes or fails. The removal of qualitative factors to skew the decision makes the process more meaningful and effective.

The worst investments decisions are based on emotions. Removing emotion from the equation provides added protection from risk for plan fiduciaries, whatever external factors might make the markets swoon.

Most plan sponsors believe they can rely on their broker for these fiduciary processes. This can be a mistake because the plan sponsor is responsible not the broker. Implementing a process is vital for fiduciary protection and plan participants success.

Please comment or call to discuss how this affects you and your organization.

  • What Plan Sponsors Should expect. (
  • Court Rules Kraft’s 401(k) Plan May Have Holes (
  • Smart Investor – Why Fees Matter for 401(k) Plan Fiduciaries, But Not Defined Benefit Pension Plans (
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