Why Conflicts in Your Retirement Plan Matter

In the retirement plan industry, we bandy about a wide variety of terminology to convey the various roles players have in serving retirement plans, their sponsors, and participants. One of those words is fiduciary. Some firms serve as fiduciaries, while others adopt fiduciary best practices. Some firms are independent, while others act with independence.

Not surprisingly, and arguably intentionally, these words lose meaning.

Suppose a recordkeeper, not serving in a fiduciary capacity to clients, utters the word fiduciary 12 times in an hour-long presentation. After hearing the word a dozen times, a reasonable person may leave the presentation unaware that the provider is not, in fact, a fiduciary.

If a recordkeeper highlights the independence of its retirement plan servicing from its retail brokerage operations but pushes financial wellness solutions that drive participants to purchase retail products and services, is that recordkeeping truly independent?

The “devil” of these issues is in the details, and plan sponsors with limited time and a lack of familiarity with these topics, make well-intentioned mistakes as they attempt to navigate an intentionally complicated regulatory framework and vague language.

Serving clients as a fiduciary does matter. It means that the organization you work with acknowledges (in writing) its legal obligations to the plan and its participants. However, being a fiduciary is of limited value if the service agreement with the sponsor reduces that obligation to mere words by pushing responsibility back on the sponsor.

It is also true that being a fiduciary does not make you independent.

The Oxford dictionary defines independent as:

  1. Free from outside control, not depending on another’s authority
  2. Not depending on another for livelihood or subsistence

We believe independence is key to being a fiduciary. Independence from outside control or authority means the organization is free to pursue its foundational objective - serving in the best interests of the plan.

Can firms that lack independence do good work? Yes. However, the good work comes despite their lack of independence, not because of it. The rollups that are occurring in our industry are not occurring because they bring scale to retirement plan consulting. They occur because of the gravitational mass they create to cross sell other products and services.

When the fiduciary to your plan is also accountable for selling new products and services to clients, independence is tested in ways that may be difficult for plan sponsors to document and execute.

Being a fiduciary is important. Being independent is also important as it allows fiduciaries to sit with their clients instead of across from them.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.

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