It's so you don't get sued

In a post titled, "Why 401(k) Plan Sponsors Should Make Sure Education and Advice is Offered To Their Participants", Ari Rosenbaum points out:

"Studies have shown that the use of investment education and advice has increased the rate of return for participants.  So plan sponsors who want to boost employee morale, one way is to help increase the retirement savings of their employees because better informed participants will make better investment decisions and net better returns."

Education (including, we might add, good quality information about the mutual funds offered) helps make employees happier about their retirement plan, but Rosenbaum's scarier point is, "Offering education and advice goes a long way in satisfying the fiduciary process under ERISA §404(c) to limit a plan sponsor’s liability."

Investigations into improper advice

Ari Rosenbaum's always informational blog recently brought my attention to an article from Drinker Biddle detailing recent "investigations of broker-dealers related to their services to ERISA retirement plans."

The main points are:

1. That brokers and RIAs can act as plan fiduciaries even if they don't acknowledge that they are acting as plan fiduciaries, such as by giving individualized advice.
2. That these same brokers and RIAs could give prohibited advice by recommending a fund when, for instance, they receive "soft dollar" payments.

We think good data can be a part of helping brokers and RIAs show that the funds that they recommend to plans can be trusted.  And we think that plan sponsors can use good data to ensure that the advice they get from brokers and RIAs.