By Joan Neri, Esq.
RIAs should know what it means to be a “designated investment manager” (DIM). This is important because under DOL guidance, if an RIA is a DIM, then the RIA’s investment management strategies — including asset allocations — are not considered designated investment alternatives subject to detailed participant disclosure (e.g., expense ratios, performance history, portfolio turnover rates). In contrast, the participant disclosure rules that apply to a DIM require only that the plan — initially and then annually — provide to participants the identity of the DIM and a description of the DIM service and fee. RIAs will likely want to coordinate this disclosure with the plan’s recordkeeper or other service provider.
Under the DOL guidance, an RIA can qualify as a DIM if the RIA is a 3(38) investment manager designated by the plan fiduciary and made available to plan participants to manage their plan accounts; and if the investment strategy is employed on a participant-by-participant basis.
While the term “participant-by-participant basis” is not defined, we believe it means that each participant’s account must be managed in a manner that is appropriate for that participant, based on the information available to the DIM. The DOL lists the following as participant-appropriate factors that the DIM can consider: age, time horizons, risk tolerance, current investments, sources of income and investment preferences. Other participant-appropriate factors may be considered as well.
RIAs should consider the process they will use to collect this information and create the materials describing the DIM service that must be provided to participants for risk management purposes. This documentation should be maintained as evidence of DIM status. Also, the plan advisory contract and the IPS will need to contain special language. RIAs should discuss these issues with their attorneys.
Neri is an attorney in Drinker Biddle & Reath’s Florham Park, NJ office.
