Entrepreneurs Not Sure About Fiduciary Responsibility

June 12, 2003 (PLANSPONSOR.com) - Sixty-three percent of American small businesses are only somewhat or not-at-all certain they have planned appropriately for their financial needs.

Yet, the majority of small business owners believe they have what it takes to carry out their responsibilities for their business’ retirement plans despite obvious missteps, according to Nationwide Financial’s Financial Advice Today: A Small Business Perspective study.

Among the misconceptions:

  • a large percentage incorrectly identified the plan’s investment provider, the financial advisor, and even employees as having the plan’s fiduciary role
  • while 61% report they have an investment policy statement in place, less than that reported having a formal process to evaluate investment selections on a regular basis.

Additionally, the survey found that while the majority of the 501 small business owners polled were unable to accurately answer basic questions about their retirement plan responsibilities, more than four in five owners say they are comfortable they are meeting them.  

Perhaps entrepreneurs realize the errors of their ways, with half saying fiduciary and legal responsibilities are a top concern and a similar number reported increased concern on the part of employees about their retirement plan investments in the last year. Then again, perhaps not, as only one in five have taken steps in the past year to increase fiduciary oversight, including switching companies or consulting with a professional.

Advice Seekers

When it comes to advice though, small businesses turn to certified public accountants, personal bankers and attorneys. Additionally, entrepreneurs take advantage of professional Web sites and associations are used by small business owners in planning for their business future.  

Despite seeking advice, when it comes to the personal finances, less than half (45%) currently have a personal financial comprehensive plan, with two-thirds of them using an investment professional to prepare it.

For those business owners that utilize an investment professionals, 45% use the same professional for business and personal issues all or most of the time and another 26% report using the same professional for both business and personal issues some of the time.   When selecting these professionals, entrepreneurs rated expertise, experience and knowledge as the most important qualities with traits like honesty, integrity and trustworthiness also rated very high.

Surprisingly, familiarity and cost were not considered important at all.