Investment Excellence

The right expertise to make investment decisions
L to R: O’Connor, Brookman and Hunt

The right investment lineup in a retirement plan is crucial to help plan sponsors fulfill their fiduciary duties, but even more important to plan participant success is the allocation in which a participant invests. Many plan sponsors are looking for assistance to ensure that both of those goals are fulfilled. To discuss ways in which plan sponsors can get help in outsourcing some of those fiduciary responsibilities and achieve best practices in participant asset allocation, PLANSPONSOR spoke with experts at Morgan Stanley: Ed O’Connor, managing director and head of Retirement Services; Marc Brookman, managing director responsible for the Graystone institutional consulting businesses, advisory distribution, and advisory products and platforms; and Dan Hunt, Global Investment Committee senior asset allocation strategist.

PS: What is a 3(38) investment manager, and what is the benefit of using one for a plan sponsor?

O’Connor: An investment manager under Section 3(38) of the Employee Retirement Income Security Act (ERISA) has full discretion over a plan’s investments with the authority to buy and sell plan assets. What we’re talking about today is Morgan Stanley Wealth Management’s plan to start providing 3(38) investment management services to defined contribution (DC) plans later this year.

As plan sponsors know, they cannot completely eliminate their fiduciary responsibilities. However, by appointing a 3(38) investment manager, they are able to bring someone with investment expertise into the fiduciary boat with them. They of course have to monitor what the 3(38) investment manager does, but the plan sponsor can empower them to pick and change the investment choices within the plan without previous approval.

Now, allowing a 3(38) investment manager this level of discretion can provide a more efficient and timely process for managing the plan. And this is especially important if the 3(38) investment manager is constructing models for their participants—like custom glide path target-date solutions. And that is what we at Morgan Stanley Wealth Management are really excited about: using our investment expertise to provide customized target-date glide paths or targeted risk models to participants and then picking the investment managers to construct them.

PS: How can plan sponsors get help selecting the right manager?

Brookman: It’s a complicated situation that the average plan sponsor or participant cannot invest the time and effort to fully understand and execute. What we do at Morgan Stanley Wealth Management is sometimes package the solution with the investment managers we deem appropriate, like in a model portfolio and sometimes by providing the right consultant to advise the plan sponsor. Too often the participants are left to fend for themselves and/or the plan sponsor is provided a one-size-fits-all model.

A firm like ours, working with Graystone Consultants—our institutional consulting firm of 45 teams, consulting to about $190 billion in total assets, who speak this language and who can build these custom glide path and lifestyle funds by leveraging all the things a firm like Morgan Stanley brings to the table—will create a better outcome, and not just a higher return, necessarily, but better diversity in asset classes to focus on the right outcomes.

O’Connor: In addition to our Graystone Consultants, this new service can also be delivered by our corporate retirement directors (CRDs). They are very good in helping to design a defined contribution plan including the investment lineup. Both Graystone Consultants and our CRDs will now be able to service these defined contribution plans as either Section 3(21) investment advice fiduciaries or as 3(38) investment managers.