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2016-04-11 :: The new Fiduciary Rule: what every employer needs to know!
Employers need to be aware of existing conflicts and how an experienced fiduciary can resolve them.

Having been an investment fiduciary in this business for over 9 years, I find myself perplexed by the new fiduciary rule. I suspect that many employers are as well. What does this rule actually accomplish?

The new fiduciary rule simply places more administrative burden on the employer who does not know or understand their responsibilities! Employers think the fiduciary is the insurance or mutual fund company.  Unfortunately, this is wrong.  The fiduciary is you, the employer.

To make this clear for the unsuspecting employer, let’s examine the term “no conflicts.”  For employers who utilize “A” shares, brokers get directly compensated from the extra mutual fund fees imbedded in the “A” share class. In the new rule, the brokers can still be paid directly by those extra fees from the funds, but it must be now fully disclosed. Pragmatically, the conflicted direct compensation issue still exists. Employers must pay heed to these conflicts.

Let’s talk about fiduciary status. Employers should find at the very least a 3(21) co-fiduciary. That is a firm that will pick the investments, but the employer still has to approve the investment choices. The next level up is a 3(38) fiduciary. That is the firm who becomes the fiduciary and takes full responsibility for all the investments in the plan. Please note a 3(21) or a 3(38) must have a defined, provable process that is documented for the employer’s  files. Morningstar and Fund Fact Sheets are not going to cut it. Take a hard look at what Granite Group Advisors said about Tibble vs Edison on our website last year. Make sure the fiduciary (like Granite Group Advisors) provides good investment education,and does not use generic papers provided by the insurance or mutual fund company.

So what should the employer do? First, hire a fiduciary with experience and not forced to become one because of the new rule. Not all fiduciaries are the same or provide the same services. Explore how long the person claims to be a fiduciary and exactly what do they do. Granite Group has been a 3(38) Fiduciary for over 9 years. Second, hire a good Erisa attorney, not a corporate attorney, to make sure you are compliant. A good 3(38) has worked with Erisa attorneys for years to ensure retirement plans exceed the rules.  

To sum it up:  the new fiduciary rule does not address conflicts, but simply forces disclosure. Granite Group believes the game has not changed because the conflicts still exist.  A proactive employer will hire an experienced 3(38) Fiduciary and an Erisa attorney. Be Prepared!

Respectfully submitted,

Granite Group Advisors

203 210-7814


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