What to Look for When Monitoring Retirement Plan Advisers

Plan sponsors have a duty to monitor retirement plan advisers, but may be forgetting to request or research certain information.

Art by Marc Rosenthal


Spectrum Investment Advisors and Wintrust Wealth Management are two advisory practices that proactively share their regulatory filings with their plan sponsor clients. They say they do so in order that their clients are aware of all of their fees , the scope of their services and to be briefed on details on their practices.

However, these advisory practices are most likely not the norm, which could present a problem for plan sponsors because the courts and the Department of Labor (DOL) have determined that retirement plan sponsors have a duty to monitor their services providers—including their retirement plan adviser or consultant, says Jim Scheinberg, managing partner and chief investment officer of North Pier Search Consulting in Marina Del Ray, California.

In May 2015, Scheinberg notes, the U.S. Supreme Court ruled in favor of the plaintiffs in Tibble v. Edison International, ruling that when a plaintiff brings a claim under the Employee Retirement Income Security Act (ERISA) for an alleged failure to monitor plan investments and remove imprudent ones, the duty to monitor starts at the time of the alleged monitoring failure. This overruled the six-year outside time limit for claims of breach of fiduciary duty in the Employee Retirement Income Security Act (ERISA).

In addition, DOL has “issued a couple of publications that specifically outline the duty to monitor service providers,” he adds. “There is no good ‘duck and cover’ excuse for not doing so, especially among larger plans. The failure to monitor registered plan advisers’ regulatory disclosure information is a vulnerable area of fiduciary process for aggressive attorneys to exploit during ERISA lawsuits.”

Scheinberg continues: “There is little doubt that frequently monitoring registered retirement plan adviser disclosure information through FINRA’s BrokerCheck; IAPD [Investment Advisor Public Disclosure] database and Forms ADV filed with the SEC [Securities and Exchange Commission] and information filed with state regulators is a necessary part of the ‘duty to monitor’ envisioned by ERISA and the current regulatory regime.”

Scheinberg says few sponsors are aware of their need to stay on top of their advisers’ regulatory filings, but just as sponsors now know that they need to continuously monitor their recordkeepers, he believes the same will happen with advisers.

While Scheinberg believes plan sponsors should be monitoring advisers on a continuous basis, his firm is primarily hired to review an incumbent before hiring or to review requests for proposals (RFPs) or requests for information (RFIs).

Clear Disclosure Partners in Lake Leelanau, Michigan, is another company that has been conducting these searches for plan sponsors since 2017. “Most plan sponsors don’t know that this is something they should be doing,” says Dave Dickson, president. Monitoring advisers is important, he maintains: “We have found all kinds of irregularities.”

For example, Clear Disclosure Partners learned of one adviser who began forming personal relationships with participants in a 401(k) plan and then encouraging them to take out loans from their plans in order to invest in a new tech business the adviser was forming, Dickson says.

North Pier Search Consulting learned of an adviser who had invested in a private debt offering. While the state regulator determined that the adviser was not offering this investment to the 401(k) plans he was serving and decided to permit the adviser to continue his 401(k) consulting practice, when the plan sponsor learned of this potential conflict of interest, it decided to terminate his contract, Scheinberg says.

So, it is not just the regulatory filings that sponsors need to monitor, but it is also fees, potential conflicts of interest and services being rendered, he says. “Most advisers are not going to run afoul of regulatory issues,” he says. “Sponsors should be checking to ensure the quality and appropriateness of services are at a tenable level, that they are meeting DOL’s standard of procedural prudence.”

Additionally, if a sponsor has hired an adviser to act as a 3(38) fiduciary to select and monitor investments, it is still the responsibility of the sponsor to ensure that the advisers are following the rules and regulations of the industry, Dickson says.

Spectrum Investment Advisors shares with every client its disclosures on Form ADV, 408(b)(2) and their fees in the 404(a)(5) notice created by the recordkeepers, says Manual Rosado, vice president/partner with the practice, based in Mequon, Wisconsin.

“The recordkeepers do not necessarily pull adviser fees into their 404(a)(5), but we have worked with our plan sponsors and recordkeepers to make sure that our fees are added to this file,” Rosado says. “We have developed a fee matrix, trying to pull all of this information onto one page—revenue-sharing, recordkeeping fees, advisory fees—and benchmark the fees to similar size plans so that the plan sponsors can easily identify their plan costs.”

Likewise, Wintrust Wealth Management discloses its regulatory filings and fee statements with clients right up front and makes these disclosures part of its contracts, says Dan Peluse, director of retirement plan services, based in Chicago.

Scheinberg says it might take lawsuits for plan sponsors to become aware of their need to stay on top of such information. However, both North Pier Search Consulting and Clear Disclosure Partners say that as retirement plan conferences begin to address this issue, and if they are successful in partnering with third-party administrators (TPAs) in making this part of their services, more plan sponsors are likely to begin to make monitoring advisers a central part of their best practices.

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