NEW YORK — Paying attention to such details as retirement plan fees and documentation is a tough sell — especially when small-
business owners have businesses to run.
“There’s not a widespread appreciation by [retirement] plan sponsors of the extent of their fiduciary responsibilities,” said Peggy Haering, an accredited investment fiduciary analyst with Independent Fiduciary Advisors LLC in Woodbridge, Conn.
So in 2005, she co-founded her firm to help retirement sponsors perform fiduciary duties.
The field of fiduciary consulting has become a huge business in the last couple of years, especially since the collapse of Enron Corp., said Donald B. Trone, president of the Center for Fiduciary Studies and chief executive of Fiduciary360 LP, both in Sewickley, Pa.
He expects the boom to continue over the next couple of years, partly because of the Pension Protection Act of 2006. “[It] will eventually require an audit of the services of the fiduciary if [the plan sponsors] engage an adviser, which the majority will,” Mr. Trone said.
The demand could be huge, he said, pointing out that of the 600,000 401(k) plans in the United States, 90% are held by small businesses with less than $10 million in assets.
And their fiduciaries apparently need a lot of educating, according to a recent study by New York-based
AllianceBernstein Investments Inc., which found that more than 60% of plan sponsors didn’t realize they were fiduciaries.
A longtime investment consultant to retirement plans, Steve Lansing, a consultant with Bogdahn Consulting LLC of Winter Haven, Fla., has been a fiduciary services specialist for the past four years. “We, in writing, represent and warrant that we are fiduciaries,” he said.
Some consultants keep plan sponsors updated with timely information. Ms. Haering’s firm’s services include designing retirement planning investments, in-depth monitoring, cost audits and fiduciary audits.
She especially is concerned about unmonitored plan fees. “There’s trillions invested in these plans, and the amount being sloshed around in revenue sharing is in the billions,” Ms. Haering said.
With the possibility of plan participants bringing suit against plan sponsors, “you could be advising someone who could be a liability,” said Wayne Miller, chief executive of Denali Fiduciary Management of Vashon, Wash. Formerly a registered investment adviser, he has been doing pure fiduciary consulting since last year.
Advisers tend to lack fiduciary-related knowledge in two areas, he said: operational controls (internal rules and regulations) and governance issues (decision-making structure, controls and processes).
“If [advisers] want to specialize in working with retirement plans, they’ll need to change the way they operate their businesses,” Mr. Lansing said. His advice: Be independent by forfeiting broker-dealer or insurance licenses and affiliations with entities that hold those licenses; partner with other disciplines; and become knowledgeable in specialized areas such as behavioral finance in order to understand participant behavior.
Both Mr. Miller’s and Mr. Trone’s firms offer fiduciary-related training programs.
Governance training
Mr. Miller’s program is a video-based training module that focuses on fiduciary governance and takes between four and five hours to complete. It is approved for continuing education credit for CPAs and CFPs.
“One investment manager subsidizes the cost of this training for his clients,” Mr. Miller said.
Through his center, Mr. Trone offers a two-day program that exposes participants to a four-step prudent investment process.
Also, a three-day classroom course focuses on global fiduciary auditing procedures, leading to the accredited investment fiduciary analyst designation.
Steve Bowery, a chartered financial analyst and a certified financial planner with Virginia Capital Strategies LLC in Roanoke, has five years’ experience in fiduciary consulting. Besides managing about $65 million in assets for high-net-worth individuals, he provides 401(k) investment and fiduciary advisory services to a number of organizations, with assets of about $150 million.
The 401(k) advisory side of his business generates about 25% of his income, though it could grow to 100%.
When analyzing his clients’ investments, Mr. Bowery uses a very detailed proprietary model.
“The most important reason for this service is the improved fiduciary oversight,” he said. “If you look at the regulatory guidelines, it all goes back to process — a way to look at things systematically and logically.”
