Tip for April 2018
Many investment service providers represent themselves to be genuine, devoted partners to retirement plan sponsors – from their brands, to their marketing presentations, to their detailed, regular updates to clients.
By all accounts, it appears that these vendors’ efforts are focused on helping their clients’ retirement plans to be successful. Unfortunately, while corporate fiduciaries may interpret that investment vendors are acting in their employer’s best interest, some vendors are authentic in one thing, and one thing only: their desire to be profitable.
The Pursuit of Profit Overrides Ethics
Being profitable does not necessarily exist to the exclusion of being ethical and representing clients’ interests, but U.S. pension and trust laws blur this line of profitability vs. ethics to an even fainter shade of gray. For retirement plan sponsors, fiduciary laws require that they adhere to a strict set of processes relating to the management of their employees’ retirement plans.
On the other hand, no laws burden service providers (vendors) with a fiduciary duty that is equal to that of their clients. Hence, there is a fundamental misalignment of interests at play.
Most pension executives and foundation trustees care greatly about doing the right thing and adhering to the laws governing their fiduciary duty. Vendors legally have the latitude to care greatly only about money, if they so choose.
Tip:
Vendors are specialists in the marketing of their investment products and services. Most executives who are buyers of services for their employer’s ERISA plans are unable to match the vendors’ skills and tactics, which exposes employers to camouflaged risks.
Here are three things effective risk management executives do annually:
- Confirm that the retirement plan’s vendors have been subjected to an independent assessment;
- If the vendor assessment is older than one year be sure to have it updated before the end of the current plan year; and
- Avoid the do-it-yourself trap when it comes to hiring and monitoring ERISA plan vendors; the market is changing dramatically.
Roland|Criss is a specialist in analyzing vendors.
Contact us for information about our Vendor Value Index, which is a valuable service provider monitoring tool.
