Suitability or Fiduciary Standard? – It’s a Big Deal!

The Wall Street bullies continue to take advantage of both plan sponsors and plan participants. Eventually plan sponsors will realize the importance of hiring a fiduciary adviser for their plan. The 401(k) plan has become the sole source of retirement for most Americans. Therefore, the focus of the plan must become that of a prudent investment platform.

Fiduciary Trust Building
Fiduciary Trust Building (Photo credit: ToastyKen)

Reducing plan costs and increasing account performance can greatly increase the future retirement income from the 401k, which is the objective in the first place. A professional fiduciary can also assume some of the plan sponsor’s ERISA responsibilities, which decreases the plan sponsor liability.With increased awareness of the fiduciary standard and the obvious benefits, this approach is becoming more popular. To try to maintain their profit margins and stem the movement to the use of fiduciaries, some financial services companies are trying to convince plan sponsors that they operate as a co-fiduciary or under the fiduciary rules.

Again, take Hancock for example. In 2005 they claimed to offer a “Fiduciary Warranty” but when sued in court, they changed their tone. “Hancock argue(d) that it is not an ERISA fiduciary because it does not exercise discretionary authority or control over the disposition of Plan assets.” They settled out of court for an undisclosed amount. It remains very apparent that these big companies operate under the suitability standard which continues to allow plan participants to be taken advantage of with high fees and questionable investment options.

It boils down to one question. “Do I want the highest standard of care regarding my investment advice or retirement plan?” If so, you want the Fiduciary Standard.

Since the Supreme Court ruling, LaRue vs. DeWolff, the answer to this question may be even more important. The court ruled that plan participants could sue the plan sponsors and others for fiduciary breaches. If breaches occurred and caused financial losses, those persons are PERSONALLY financially liable. When plan sponsors opt for the lower standard of protections of the suitability standard it could be argued it is a breach in itself since the plan sponsor had the option of a higher standard of safeguard, but failed to act in the best interest of the plan participants. Why would a plan sponsor gamble when the fiduciary standard is clearly the best option?

Many brokers sell 401(k) plans as a lead generation tool. These brokers/agents are not accountable for the quality of the plan. To increase your plan’s effectiveness you should hire a fiduciary adviser.

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

Posted via email from Curated 401k Plan Content

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