Editor’s Note: This is the last in a series of posts by speakers at the 2013 NAPA/ASPPA 401(k) Summit, March 3-5, 2013 in Las Vegas. Jonathon Dues, Senior Vice President, Business Development/Investment Strategies, Mesirow Financial Investment Strategies, offers insights into how institutional fiduciary solutions can be built to be complementary resources to a financial advisor’s business.
By Jonathon Dues
The pending regulations to be proposed by the Department of Labor may more clearly define a financial advisor’s role as a fiduciary if he/she provides investment advice to plan sponsors. These pending regulations have caused an increase in the popularity of institutional, outsourced 3(21) and 3(38) fiduciary solutions. These services are typically built into defined contribution products by the retirement platform provider, and are designed to help mitigate a plan sponsor and/or advisor’s fiduciary risk. However, because of the fast rise in popularity of these solutions, their applicability is often debated by retirement industry professionals.
One often-debated topic regarding these solutions is whether or not a 3(38) solution is “better” than a 3(21) solution. However, both services can provide valuable benefits to plan sponsors and/or advisors, albeit different ones. Most successful, institutional 3(21) services are by design more flexible in order to assist the plan/advisor with fiduciary responsibilities with respect to investment selection and monitoring, while 3(38) solutions assume full discretion for selecting, monitoring and (if necessary) replacing the investment options. The adoption of these services typically comes down to whether or not there is a benefit for the plan sponsor to hand over full discretion of investment option selection and monitoring to a third party.
Another issue that has come to the forefront regarding institutional fiduciary services is whether or not they diminish a financial advisor’s value proposition to plan sponsors. Some retirement plan advisors that offer fiduciary services feel that these new features are in direct competition to the services that they have historically provided their clients. However, some well-designed institutional fiduciary solutions may be built to be complementary resources to the financial advisor’s business, and should “peacefully co-exist” with advisors who can do so.
Jonathon Dues Wood will join Joshua Itzoe, of Greenspring Wealth Management, and Pat Rieck, of Morgan Stanley Smith Barney, C for Workshop 1, “The Growth of Institutional Fiduciary Services,” in Las Vegas on Sunday, March 3 at 2:45-3:45 p.m.
***Information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. Any opinions expressed are subject to change without notice. Mesirow Financial refers to Mesirow Financial Holdings, Inc. and its divisions, subsidiaries and affiliates. The Mesirow Financial name and logo are registered service marks of Mesirow Financial Holdings, Inc. ©2013, Mesirow Financial Holdings, Inc. All rights reserved. Used by permission. Advisory Fees are described in Mesirow Financial Investment Management, Inc.’s Form ADV Part 2. Advisory services offered through Mesirow Financial Investment Management, Inc. an SEC Registered Investment Advisor. Advisory Fees are described in Mesirow Financial Investment Management, Inc.’s Form ADV Part 2***.
