Roland|Criss Blog

Buyer Beware

by Ron W. Hagan

In a recent article appearing in CFO.com, Jeff Mamorsky revealed a surprising development that could change the game for multi-employer plans ("MEP").  Highlighted in this revelation was the report by the Department of Labor ("DOL") indicating that MEPs may not satisfy the requirements of ERISA if there is not a sufficient "connection" between the plan sponsor and the participating employers.

The term "connection" is thoroughly defined in the article.  In summary, it is a relationship "between an employer and employee that participate in the plan by some common economic benefit or representation interest or genuine relationship unrelated to the provision of benefits."  This could challenge the arrangements between a professional employer organization ("PEO") and its co-employer clients.

While it seems that the DOL is preparing to tighten the belt on its definition of the business relationship between service provider and co-employers (or participating employers) in a MEP, the bigger picture and heavier weight of burden has to do with the DOL's concern that participating employers are engaging in MEPs to relieve themselves of ERISA fiduciary responsibility. 

Fiduciary Protections that Fail in the Courtroom

There are many business models in the retirement plan industry that claim to offer fiduciary protection.  Very few vendors' claims of such protection are surviving tests in cases involving breaches of fiduciary duty against plans sponsors.  And rarely do plan administrators test the validity and functionality of these providers' claims.  In particular, there are many PEOs that promote their version of fiduciary protection with words like...diminish, reduce, eliminate fiduciary liability...for their co-employer clients. It is this claim that gives us great pain, for both the PEO and the co-employer. 

Sowing the Wind to Reap a Whirlwind

I just read about another conflicted service provider that offers TPA, recordkeeping, and investment advice services, promoting its great victory in landing thousands of small employers.  It's main pitch to the market is its ability to offer a retirement program to these employers "without their incurring any plan sponsor or fiduciary liability."  This was released just 10 days after the article appeared in CFO.com.

Is anyone reading this stuff? Does anyone care?  Co-employers will, of course, eventually care. 

The Good Guys Still Wear White Hats

With that said, there are PEOs that work very well for their clients.  But they are also the ones that do not deceive their clients. They disclose the fact that the co-employer maintains the fiduciary responsibility to prudently select and monitor the performance of the PEO in accordance with best-practice standards.  These PEOs equip their clients with ways to monitor them; objective and transparent proof, not deception.

Ironically, the retirement plan service providers (PEOs included) are all too willing to provide a myriad of services that they have defined and developed, while also unable and unwilling to offer the one thing their clients need the most.  If you'd like to know more about that one thing, please click here.

When the Stock Market Crashes, What Should a Fiduciary Do?

by Ron W. Hagan

If you are like most retirement plan and foundation executives who have contacted us in August, you have probably been overwhelmed with "breaking news" emails and cable news commentary about the stock market's reaction to the shakiness of the U.S. economy. With this much news, especially adverse in nature, it is easy to swing on a pendulum from over indulgence on one end, to a mental callous on the other. How do these short term market fluctuations, as well as longer term forecasts, impact fiduciary decisions, and conduct? Now, let's bring it on point relative to your role, a member of an executive team responsible for the oversight of pension assets or a non-profit board accountable for donor contributions. How do these short term market fluctuations, as well as longer term forecasts, impact fiduciary decisions, and conduct? While this is a broad and deep question, the answer is a relatively straight forward one, but not necessarily an easy one. Fortunately for us who sit in the fiduciary chair, the boundaries of liability are established. If we stay in those borders and exercise faithfully in our roles, we will be fit and prepared to handle whatever comes our way. If we remain dedicated to the disciplines and workflow processes, we can trust that the fiduciary outcomes will exceed expectations and legal requirements. While this doesn't eradicate the sting of the market losses, it does provide the confident peace of mind that the hand is at the wheel and the assurance that you have not missed anything. One of our clients said it very well when he stated, "my fiduciary concern is not tied to what I know or what I am doing, but my anxiety is created by what I don't know or what we aren't doing." Maintain high proficiency in the disciplines of fiduciary duty; governance, administration, investments, and controls, and trust the disciplines. It builds the fiduciary muscle to endure and persevere in your role. Roland|Criss has a program to help you achieve a greater awareness of the fiduciary disciplines. Contact any one of our senior professionals.

Fiduciary Terminology

by Ron W. Hagan

The investment industry ceases to amaze me with its incessant need to brand and label lofty concepts in an attempt to deceive investors and/or those who make decisions on behalf of investors.  Did I say deceive? OK, maybe not deceive, but certainly an intent to tickle the ears of some in the audience and outright to confuse others.

In my world, particularly the work that my company (rolandcriss.com) performs, business leaders who are tasked internally with the responsibility to manage and oversee the company's retirement plans play an important role and they bear an even heavier legal burden.

Back in the day, the investment product sales people peppered these executives (let's call them fiduciaries) with slick marketing campaigns, well known brands, and investment data that read and sounded pretty good, whether they could verify it or not.  The problem: the investment community essentially defined and wrote the rules of engagement.

In contrast, most mid to large size companies allocate significant budgets to quality assurance and supply chain management programs.  In this venue, the company (buyer) defines and writes the rules of engagement.  These corporate professionals pursue advanced degrees and sit through professional development and continued education sessions to hone their skills.  Supply chain managers would no sooner implement a vendor's recommended steps for monitoring its success than they would hand the supplier the corporate check book.

However, that is precisely what we have done in the retirement plan industry.  In an honest attempt to offer retirement benefits for our employees, and in a manner that serves their best interest, most (not all) of the plan sponsor community has inadvertently entered into contracts that serve the best interest of the service providers.

How did that happen? Hmmm, where do I start? 

In large part we accepted what the providers (brokers, investment advisors, and third party administrators) presented in a sales presentation or RFP bid as truth.  No fault of our own, we didn't posses a method or QA program to help test and verify what was verbally promised, but contractually omitted.

Today, the retirement plan freeway is littered with terms like co-fiduciary, full fee transparency, independent fiduciary, fee neutral, fund agnostic; I could go on and on.  But is anyone reading the contracts or actually testing the services delivered for their value?  Do we know what to look for?  I encourage you to do so.  You will be glad you did.

This is what drives my passion.  We clean up the messes; we help fix conflicts; we slash fees for participants; and we define success measurements and monitor results.  We are not an investment advisor or manager with a better mousetrap.  We are an honest to goodness fiduciary who pursues excellence.

Caught in the Middle

 by Ronald E. Hagan
CEO -  Roland|Criss

The financial consulting industry is embroiled in an internal fight.  At issue is the national effort to make all investment advisors legally required to put their clients' interests first.  In other words, to make all financial consultants accountable as fiduciaries.

Insurance companies and securities brokerage firms oppose strongly the fiduciary requirement.  They argue that a fiduciary standard covering all insurance agents, mutual fund brokers, bond brokers, pension consultants, and the like would only increase their costs.  They imply that the costs would be passed on to retirement plans, foundations, and retail clients.

Under today's rules, investment consultants may receive both direct and indirect financial benefits from investment product sources like mutual fund companies and insurance annuity issuers.  These benefits influence consultants' recommendations.

If they were held to fiduciary accountability, financial consultants would not be able to factor their income into their recommendations.  The tendency to color advice based on which product sources pay advisors the most income is, however, pervasive.  Even consultants that are registered under the Investment Advisers Act of 1940, which imputes to them a fiduciary duty to their clients, are able to skirt that law and receive extra money rewards.

The widespread opposition among financial consultants to a universal fiduciary standard for all investment vendors tears the cover off the trusted advisor concept.  This is bad news for those caught in the middle such as retirement plan sponsors, endowments, foundations, and private trusts.  The fiduciary laws to which they are accountable provide no relief from the duty to put the interests of their retirement plans' participants, charitable donors, and beneficiaries first.  Given the extent to which duty bound fiduciaries rely on investment "professionals" for the tough decisions they face, it seems only right that advisors who enrich themselves at the expense of trusting clients should get in the middle, too!

Carrying The Stone

by Ron W. Hagan
Executive Vice President - Roland|Criss

I just read an invitation from a service provider promoting an event for 403(b) retirement plan sponsors.  This one is no different than the growing number of events hosted by providers to “help” plan fiduciaries understand their NEW fiduciary duty and help “mitigate” fiduciary liability. 

Don’t get me wrong, spreading the message of the need for high quality fiduciary practices is essential to fulfilling ERISA’s mandate to operate retirement plans in the exclusive interest of the participants.  Contrary to the idea advanced by many service providers, however, these practices have always been required of fiduciaries.  There is nothing new.

We’ve been committed to carrying the stone for plan fiduciaries for the last 25 years.  So why are service providers just now talking about mitigating your liability?  It’s because you are beginning to ask for more disclosures of their work and fees.

From our vantage point, organizational leaders and managers are asking for help; help in shoring up their gaps in knowledge, experience, and processes.  Their authentic pursuit of best practices fuels our firm’s associates’ passion to create the next great “TQM” movement.

There is a void in most all retirement plans; the void is the lack of certainty that critical processes are being executed well and in accordance with ERISA’s requirements.  It could exist in your plan as well.  Incidentally, just try to get one of your retirement plan’s current vendors to certify that your fiduciary system complies with ERISA!  My bet is that in spite of their posturing, they can’t do it and won’t.

Newsflash: Service providers cannot takeover your liabilities.  Furthermore, so-called “investment fiduciaries”, which includes investment advisors, are not liable for anything that is not specified in their contract.  Here’s an example of how this can trick plan sponsors into thinking they are getting something important when they actually get nothing at all.

A financial consultant registered under the Investment Advisers Act of 1940 is automatically a fiduciary to any and all of its clients.  They would include private individuals, corporations, and so on.  The fact that the consultant is a fiduciary under that Act does not make it an ERISA fiduciary.  In order for a plan sponsor to get the benefit of having an “investment fiduciary” on their plan, the consultant’s contract needs to acknowledge that it is an ERISA fiduciary, too.  Most of the hundreds of investment consultants we’ve encountered imply ERISA status when they actually avoid it with a vengeance.  If you rely on a financial consultant for “”fiduciary services,” you may want to check their contract again.

Getting rid of the uncertainty is easy.  Roland|Criss is fully devoted to aligning plan sponsors with ERISA.  We inspect agreements, scopes of services, and legal accountabilities.  Since we offer no other services, our opinions are unbiased and impartial.

Keep pressing in!  In order to succeed, plan fiduciaries need to think in terms of workflow process, focus and experience, and possibly the most important requirement, eradication of conflicts of interest.

Join us in the movement for fiduciary excellence.

Hoodwinked

by Ron W. Hagan
Executive Vice President - Roland|Criss

Have you ever been influenced slyly by someone who feigned good intentions only to cheat you out of your hard earned money or your perception of value?

Maybe you didn’t end up getting as much as you thought you’d get for that car you traded in. Or maybe that vacation wasn’t as “all inclusive” as the sales person promised.

Being cheated, beguiled, bamboozled and duped stings doesn’t it?  While it’s a blow to the mind, it has an even sharper edge to the heart.  As I think through this, it’s one thing to make a mistake; the human mind will adapt and learn how to avoid such a blunder in the future. However, the heart can quickly distrust.  Overcoming broken trust is a much different process and has wide scale ramifications in the world of financial stewardship.

Where am I going with this anyway? In our independent fiduciary business, we are known for making retirement systems and charitable organizations safer places for putting money.  We do this by testing intensions, evaluating decision making processes, and determining the fairness of the fees that are charged to investors who don’t know how to discover these on their own.  It is a wildly purposeful mission.  

Excelling as a fiduciary requires that you persist in pursuing the best; to not waver in pressing in to what is right on behalf of those who are depending upon you.  In our capacity, it is highly rewarding to help interpret and define the difference between what is best from what is deceptive. In the investment industry, these lines are very murky.

Fiduciary Yardsticks

by Ron W. Hagan
Executive Vice President - Roland|Criss

Renowned big thinker and trusted management guide, Peter Drucker, wrote, “Each institution will be the stronger the more clearly it defines its objectives.”  He further stated, “It will be more effective the more yardsticks and measurements there are against which its performance can be appraised.”

In the realm of stewardship, such as boards of directors, retirement plan committees, and foundation investment committees, how do we follow the guidance of Mr. Drucker?  Is it possible to meet objectives if none are conceived, thought through, and owned?

Is it possible that in these fiduciary environments our attention has been diverted?  Intentional or not, many governing bodies find themselves in a strategic quandary; reviewing and monitoring information that has no connecting point to stated objectives. 

This happens in board rooms across the country, typically around investment related matters where third party consultants are relied upon to define and measure performance for board and committee members.  In this scenario the fiduciaries’ efforts are analogous to flying a kite without a string.  There is no connection.

In these days, when the word 'fiduciary' has seen more play time, air time, and court time than the last 100 years combined, it might well be worth the time for boards and fiduciary committees to devise agame plan to determine their objectives.  And, of course, I would be remiss if I did not suggest that you get some coaching that is based on a proven track record. 

If Peter Drucker were with us today, he might very well conclude our conversation with his question: “Are your performance yardsticks appropriate to your objectives?”

We can help you.

A Firm Foundation

“Outstanding!” said Phil Melberg of Roland|Criss’ Foundation Roundtable in Washington, D.C. on December 9^th.

To all the panelists and participants, please accept our deepest appreciation for your contribution to the Washington, D.C. Foundation Roundtable. Your participation was invaluable. We are excited to walk this path with you, defining industry standards, interpreting best practices, and measuring results in an effort to excel in our fiduciary roles. What's next? In response to an overwhelming acceptance of the IFLC Foundation Standard, we are planning a follow-up event scheduled for February 17, 2011 in Washington, D.C. For those of you who were unable to join us, this will be a wonderful opportunity to contribute to standards development, enhance your awareness, and network with colleagues. What we heard from you… Standardized fiduciary practices will benefit the foundation community. Most believe that regulatory enforcement will increase. Many foundation executives are unclear about UPMIFA's requirements for fiduciaries. Fiduciary best practices would help your organization in the areas of governance, administration, and controls and practices. Fundraising and development would be enhanced if a foundation can demonstrate adherence to a fiduciary standard.

For more information visit us at www.rolandcriss.com or contact us at admin@rolandcriss.com.

Fiduciary Training - December 9, 2010

How to perform and supervise fiduciary activities with confidence and safety.

Learn fast, easy-to-use tools and techniques to transform unproductive confusion about the demands on fiduciaries into predictable outcomes. This seminar equips you with the most effective tools to satisfy the changing fiduciary requirements of the Employee Retirement Income Security Act ("ERISA") and their effect on what you should do.

View the extended seminar outline.

Mission and Purpose

The Stewardship Development Center seeks to build a fiduciary community committed to excelling in the fiduciary role, leading through stewardship principles, and exemplifying these tenets through real-world practices.

To Lead or To Be Led

by Michelle Sly-Laughlin
Regional Director - East, Roland|Criss       

While attending the Council on Foundation's Conference on Investment Management for the Future, a participant posed a question, she asked “what increased level of responsibility do endowment and foundation executives have to demonstrate prudent investment decisions given the massive amount of dollars that they collectively invest in the market.”  In essence how do we minimize the risk of future market scandals?

As the fog begins to lift from the market scandals over the past two years, the answer should be clear: foundation executives should consider reforming their stewardship game plan to demonstrate increased vigilance in their fund strategies, policies, and fund manager performance measurements.

It occurred to me that many of these endowments and foundations depend on their investment advisors and investment managers to execute their investment strategies.  Based on what we’re hearing from the foundation executives, the time is now for them to mount a pursuit of excellence and impose new standards among advisors and managers.