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Plan advice: All set? Maybe, maybe not! Part 2: The all-important difference between information and advice.

September 16, 2011 (PLANSPONSOR (b)lines) - Not just a word game – “information” and “advice” have very different fiduciary and legal implications. Many employers have a false sense of security.  Do you?

By PS | September 16, 2011
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Synopsis of Part 1 of this article: (Link to Part 1:  

  • Plan-level decision makers are fiduciaries 
  • Fiduciaries are held under ERISA to a Prudent Expert standard of conduct, and are required to hold the participants’ interests above all else 
  • Providing advice for compensation is a fiduciary act, so an advisor becomes a co-fiduciary 
  • Most service providers avoid fiduciary status by providing information instead of advice 
  • The information provided is useful, but you are on the hook for any decisions made 
  • As non-fiduciary service providers, they are not obligated to place your participants’ interests above their own business interests.  This is the key point. 
  • Non-fiduciary service providers can be great partners, but don’t kid yourself about who is in the bull’s-eye if a regulator or plaintiff’s attorney comes knocking  
  • Using an independent plan adviser, to compliment your existing service provider relationship, can lead to better results with less liability 


What is an independent plan adviser?  

  • Independent – sitting on your side of the table; not affiliated with the plan’s other service providers; objective; serving the best interests of your plan and its participants 
  • Plan – a plan adviser is more than just an investment adviser.  Retirement plans are a quirky, specialized world of their own.  A good plan adviser will be able to help with all aspects of running a successful plan, including: regulatory and plan design issues; investment policy, process and governance matters; employee enrollment, communication and education activities; workload and process efficiencies – the whole business of plan management 
  • Adviser – an adviser is a partner that makes intelligent recommendations, shares responsibility and adds value through specialized knowledge and experience 


What’s it cost, and who pays?  The cost of working with an independent plan adviser varies quite a bit, depending upon the circumstances, such as: 

  • Plan size 
    • If the adviser is accepting fiduciary responsibility, the advisory fee would typically take the amount of plan assets into consideration 
    • The number of physical locations to be serviced will influence the cost 
    • The number of plan participants will also impact the workload and direct costs 
  • Scope of the engagement 
    • Is it all-encompassing “soup-to-nuts” service? 
    • Is it a limited engagement, such as investment advice only 
  • Complexity 
    • How much time will be involved 


It’s always dangerous to generalize, but as broad “ballpark” estimates, full-service advisers might charge 25 basis points (0.25% annually of plan assets) for plans with roughly $5 million to $25 million in assets.  Smaller plans often pay more and very large plans may pay less than 10 basis points.  Limited engagements start at a few thousand dollars and rise from there depending upon the scope of the work. The adviser marketplace is a competitive one, and good value can be found. 


As to the question of, “Who pays?” it can be the employer, the plan or the plan provider. 

  • Some employers prefer to pay directly for these services 
  • The costs can be paid by the plan – pro-rata, per head or potentially out of “revenue sharing”.  (Revenue sharing consists of 12b-1 fees and/or sub-transfer agency, “sub-TA” credits paid by many investment providers to plan brokers or recordkeepers.)   
Increasingly, if the economics of a particular plan justify it, providers will create a budget for payment of an independent adviser out of the revenue they are receiving.  In a way, it comes out of their profit margin, but many are willing to do it to strengthen the client relationship.