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Plan advice: All set? Maybe, maybe not! Part 1: The all-important difference between information and advice.

August 26, 2011 (PLANSPONSOR (b)lines) - Not just a word game – “information” and “advice” have very different fiduciary and legal implications.  Learn more about one of the most fundamentally important decisions facing you.

By PS | August 26, 2011
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Not just a word game – “information” and “advice” have very different fiduciary and legal implications.  Learn more about one of the most fundamentally important decisions facing you.  

Do you think, “I’m all set?” In speaking with plan sponsors, we encounter a lot of confusion on this point.  Many plan sponsors fail to understand the difference between receiving information and receiving advice.  This distinction has important fiduciary implications.  

An important point on fiduciary status:  Remember, if you are a plan-level decision maker, you are a fiduciary.  Fiduciaries are accountable to their plans’ participants, morally and legally. A service provider can avoid fiduciary status if they are simply providing information, and you are making all the decisions.  An advice provider, on the other hand, shares fiduciary responsibility and liability with you.)    

In broad terms, “information” is just that, data that you are left to interpret and base decisions upon, on your own.  Examples of information: 

  • If your provider is a mutual fund or insurance company, the quarterly or annual reports they present to you are probably information.  Look on them for disclaimer language.  Many clearly disclose that they are not providing advice. 
  • If you plan uses an agent or broker, they are probably sticking to the information side of the Department of Labor Interpretive Bulletin 96-1 guidelines.  Most insurance companies and brokerage firms will not allow their sales people to offer advice as that brings fiduciary status and shared liability. 
  • Investment review materials without specific recommendations are probably information.  Some of these reports may look like advice, but are not.  They may even contain Watch List information, but that, most likely, is just a reporting function that refers back to an Investment Policy Statement that your plan may have adopted at some point in the past. 


Thoughts about “information”: 

  • Information is valuable.  Thoughtful decisions cannot be made without good information. 
  • Non-fiduciary service providers are not obligated to provide you with “all the facts”.  The information they elect to provide must be accurate, but not necessarily complete.  Examples of accurate, but incomplete information: 
    • Included: “Our 2025 Retirement Fund returned 6.50% last year.”  Excluded: “The category average return was 7.5%, and our fund ranked in the 70th percentile.” 
    • Included: “Average fund expense of plan’s investment menu is 1.45%.”  Excluded:  “Average fund expense of comparable size plan is 0.99%” 
    • Included:  “XYZ International Growth Fund is the best performing of the five international funds available to your plan.” Excluded:  “Many better options exist, but are not available on our platform.” 
  • Fiduciaries are potentially liable if they act upon incomplete information.  A plaintiff’s attorney can have a field day if your defense is that you relied upon the completeness and objectivity of your non-fiduciary service provider’s information. 
Service providers are not evil.  Most do a very good job of supporting plan sponsors.  Just don’t be naïve about who is responsible for what.  Don’t think of them as a fiduciary unless they have acknowledged in writing that they accept that status.