SURVEY SAYS: Do We Need a New Fiduciary Definition?

March 3, 2011 ( - We’ve now moved from a proposed new (and expanded) definition of fiduciary to hearings on that proposed new (and expanded) definition of fiduciary.   

This week, I asked readers if you thought we needed a new (and expanded) definition of fiduciary – or if you hadn’t given it a lot of new (and expanded) thought as yet.  The responses, of course – were varied.

Despite all the recent debate, a plurality of this week’s respondents – 34.6% – said the existing definition works just fine. 

That said, 15.4% said that change was needed, but they weren’t sure the changes proposed were the right ones.  Another 19.2% said that change was probably needed, but they had formed no opinion on the proposed changes, and nearly a quarter (23.1%) said they hadn’t really given it much thought.

And yes, that means that just 7.7% said that they thought change was needed – and they were liking the proposed changes. 

There were a FEW verbatims this week, including:

The existing definition works just court and cocktail parties. I'm hoping for something more profound than "If it looks like a duck..."

The existing definition of a fiduciary is one the highest standards to which an individual can be held under the law. Changing the definition will undoubtedly increase costs in a variety of way, many of them yet unseen, while constricting services that are badly needed by sponsors and participants alike. Fiduciary liability insurance, for instance, has increased 5 times over the past few years, and those increases will only continue with their new definition. Those added costs will be passed on to sponsors/participants by service providers, and by corporations to their customers.

Many 401(k) Service Providers,Plan Sponsors, Administrators, Trustees, Investment Committee Members, Fiduciary Delegates, Participants & Beneficiaries, involved in plan operations, or performing functions for the plan, have some difficulty in response to the question: "WHO IS A FIDUCIARY" ? Typically, a Basic Plan Document for a "Defined Contribution Prototype Non-Standardized Profit Sharing Plan & Trust" consists of 150 pages, from A to Z. Add to this, Adoption Agreements, Group Annuity Contracts, Services Agreements, Trust Agreements, SPD's, SMM's, Investment Monitoring, Peer Analysis Reports, Annual 5500 Reports, Disclosures, Recordkeeping, and compliance/conformance with Rules & Regulations. The fiduciary responsibility is to maintain a chronology of all so-called "Plan Documents", and ensure that all participants and beneficiaries have the information they need to make informed decisions and direct the investments of their individual accounts. Simply put, the fiduciary is also the "Adviser" both from an educational or financial viewpoint. In a small Plan, one person can monitor and comply with all of the above. Mind-boggling, YES ! IMHO- WE DO NOT NEED "BROADER" CHANGES TO FURTHER CONFUSE THE DEFINITION OF "FIDUCIARY". The old saying is "It's eating my lunch".

"Serving literally thousands of retirement plan participants in Florida and listening to their needs, matched up to the rules as enforced by B/Ds shows a serious disconnect.  Employees are looking for specific help creating portfolios and investment advice ongoing.  B/Ds if not the advisors flat out forbid advisors from building a portfolio for plan participants and or advising they make changes when say there is an obvious shift in expected returns from one asset class to another.  As an example; let's say there is some significant international turmoil that might warrant ""long term"" investors to peel back a 15% exposure to international to 10% or even 5%.  The three B/Ds that we have relationships with all prohibit that degree of investment advice.  Employees need help if they are going to be successful in reaching retirement goals/needs."

I don't know that we need to expand who is a fiduciary (which is how the proposal changes read), so much as we need a more "understood by the fiduciary" definition.   Ask the average plan sponsor if he is a fiduciary of the plan, and you get "no" better than 50% of the time.   When pressed, they admit they don't know who would be, or state that their TPA is the fiduciary.   There needs to be better education, but plan sponsors tune out when the definitions are too hard to understand.

As for some specific suggestions, I liked these:

Anyone who gives investment advice to a plan and/or its participants.  this should exclude those who merely provide access to a menu of investments, or who provide pure education

"It might be best to define a ""Non-Fiduciary"", or a ""Co-Fiduciary"" who performs ""Non-Discretionary""  functions.

Do your job in a manner that would make your grandmother proud.

But this week’s Editor’s Choice goes to the reader who noted, “As long as they don't include actuaries in the definition, I don't care what they do.”

Thanks to everyone who participated in our survey!