The uniqueness of the §3(38) proposition is that the §3(38) fiduciary has discretionary authority, assuming the liability of the fiduciary process from the plan sponsor. It’s a nice proposition because many 401(k) plan sponsors don’t do a job of handling it on their own or with the help of a financial advisor. Development of an investment policy statement (IPS), selection and review of investment options based on that IPS, and offering education to participants for participant-directed plans isn’t an easy task. Please note that the hiring of an ERISA §3(38) is a fiduciary function, so plan sponsors may be on the hook if they hire a poor §3(38) fiduciary.
While many other professionals think that the ERISA §3(38) boom is just the flavor of the month, I disagree. It’s here to stay. There are too many financial advisors in this industry that have skirted taking on any fiduciary role with their clients; I worked for a producing third-party administration (TPA) firm that disclaimed any fiduciary role as an RIA. So it’s nice to see someone take on the liability and the risk at a management fee that is as good as those who want no fiduciary role in their role as a financial advisor.
That being said, an ERISA §3(38) fiduciary does not have to be the choice for every plan sponsor. A plan sponsor who is diligent in working with a competent retirement plan advisor can do a good job as well. Then again, every solution in the retirement plan business isn’t the solution for everybody, just like an ERISA attorney who charges a flat fee that is as reasonable as what the legal departments of TPAs charge. Then again, that’s another story for another time.
