{"id":1274,"date":"2013-08-05T13:17:26","date_gmt":"2013-08-05T20:17:26","guid":{"rendered":"http:\/\/staging-prblog.paladinregistry.com\/blog\/?p=1274"},"modified":"2014-01-21T15:09:53","modified_gmt":"2014-01-21T23:09:53","slug":"caveat-emptor","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/wall-street\/caveat-emptor\/","title":{"rendered":"Caveat Emptor"},"content":{"rendered":"

\"caveat<\/a>This is Part\u00a04 of a six part series on choosing a 401k plan advisor?<\/em><\/p>\n

Wouldn\u2019t a reasonable 401k plan <\/a>sponsor be put at ease with the phrases they find in the large print of the marketing material of many 401k service providers like: \u201cthird-party source of independent guidance,\u201d \u201cprofessional advice for plan sponsors,\u201d \u201cunbiased guidance\u201d and \u201ccommitment” to help you meet your fiduciary responsibilities?\u201d<\/p>\n

While these phrases all sound like valuable services, they are often merely buzzwords that indicate phantom fiduciary status. For example, the following words or phrases are all red flags: recommendation, helps, assists, suggested, for you to choose, and for consideration by the plan sponsor. These are red flags because while they imply<\/em><\/strong>\u00a0some sort of fiduciary status, they all mean that the plan sponsor is still the decision maker and that the provider is taking no true fiduciary status – which equates to no fiduciary protection! \u00a0Perhaps the biggest red flag is the word \u201cco-fiduciary.\u201d Under ERISA there is no such status as co-fiduciary; it\u2019s akin to \u201ca little bit pregnant.\u201d Under ERISA the only mention of \u201cco-fiduciary\u201d is to describe the relationship between two fiduciaries \u2013 both of whom have fiduciary responsibility and potential fiduciary liability.<\/p>\n

Often in the mouse print of the contracts for these programs you\u2019ll find explicit phrases that contradict the large print. For example, the phantom fiduciary \u201chas no authority or responsibility with respect to the selection, monitoring, retention, or termination of asset classes or investment options\u201d or \u201cthe foregoing matters are solely the responsibility of the Plan Sponsor or its agents.\u201d<\/p>\n

If there is any question as to the value of these sorts of programs one need only read the Mullaney v. Principal Financial Group case. The Principal Due Diligence Program was marketed as \u201ca \u201cqualitative and quantitative\u201d review process \u201cfor identifying, selecting, and monitoring investment management firms\u201d for investment options\u2026\u201d similar to what I\u2019ve described above.<\/p>\n

Mullaney argued that:<\/p>\n

28. \u201cDefendant The Principal Financial Group, Inc. (\u201cPFG\u201d) is a Delaware corporation, and is a fiduciary with respect to the Plans. PFG offers and provides retirement savings investment and insurance products and services\u2026\u201d<\/p>\n

Principal\u2019s response was: \u201cTo the extent a response is required, Defendants deny the allegations in Paragraph 28.\u201d<\/p>\n

The Court’s opinion in Hecker v. Deere explains the significance of buzzwords like helps. assists and recommends:<\/p>\n

\u201cMerely \u201cplaying a role\u201d or furnishing professional advice is not enough to transform a company into a fiduciary.\u00a0 There is an important difference between an assertion that a firm exercised \u201cfinal authority\u201d over the choice of funds, on the one hand, and an assertion that a firm simply \u201cplayed a role\u201d in the process, on the other hand.\u201d<\/p>\n

Since the Financial Industry Regulatory Authority and Securities Exchange Commission have regulations against deceptive or misleading marketing, and have rules mandating principles of fair dealing and good faith, one has to wonder why these sorts of programs aren\u2019t prohibited. For more, see Caveat Emptor for 401k Plan Sponsors<\/a>.<\/p>\n

To learn more about Mark Mensack, visit his sites at www.prudentchampion.com<\/a> and\u00a0 www.fiduciaryplangovernance.com.<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

This is Part\u00a04 of a six part series on choosing a 401k plan advisor? Wouldn\u2019t a reasonable 401k plan sponsor be put at ease with the phrases they find in the large print of the marketing material of many 401k service providers like: \u201cthird-party source of independent guidance,\u201d \u201cprofessional advice for plan sponsors,\u201d \u201cunbiased guidance\u201d and \u201ccommitment” to help you meet your fiduciary responsibilities?\u201d While these phrases all sound like<\/p>\n","protected":false},"author":6,"featured_media":1297,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-1274","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wall-street"],"yoast_head":"\nCaveat Emptor | Be Aware of a Phantom Fiduciary<\/title>\n<meta name=\"description\" content=\"Despite regulations protecting investors from deceptive marketing, be aware of buzzwords that imply some sort of fiduciary 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