I recently wrote an article about how financial advisors can start or grow their 401(k) plan book of business. The lament of a couple of advisors that I know is that plan sponsors are apathetic when it comes to following the fiduciary process and about plan costs. So these advisors would rather let the frustration and pessimism get the better of them.
To be honest, I am a recovering pessimist. Whether I was born that way or trained that way, for a good chunk of my life, I looked at the bleak side of things. I can remember when I thought that I would never become a lawyer or ever get a job as a lawyer because my time at law school looked so bleak to me. What changed? Maturity helped a bit, but achieving a level of success that inspired some confidence in me. It also helped being away from supervisors who were so sparse in their praise and so full of scorn. I can remember that a former Managing Director of a certain third party administration firm that shall remain nameless who laughed about 7 years ago when I suggested that I could help sell. I don’t think he’s laughing now.
The lament I hear from financial advisors is reasonable. There are many retirement plan sponsors that have fiduciary defects, administration defects, and excessive costs and simply don’t care. They don’t feel the need to be lectured on the hidden pitfalls of being a plan sponsor and the concept of fiduciary liability.
You can look at the glass half full and you look at the glass half empty. Having been in this industry for the last 12 years, I prefer to see the glass half full. When I first learned of revenue sharing, no one questioned whether that arrangement was appropriate and I don’t think any plan sponsors knew their funds paid them and if they did know, probably didn’t know what their third party administration firm (TPA) did with it. Plan sponsors didn’t think about hidden costs and in 1998-1999, fiduciary liability wasn’t much of a concern because everyone in the market was making money.
Thanks to two bad bear markets, the Intenet explosion of information, more knowledgeable retirement plan advisors, the emergence of websites like Brightscope, and successful participant lawsuits have forced many plan sponsors to become more informed and more diligent in their duties. Twelve years ago, there was such a thing as an ERISA §3(38) fiduciaries, but I never met one who did that for a living. Now I have plan sponsors who have hired me to do Retirement Plan Tune-Up reviews and ask me about ERISA independent fiduciaries without any prompting.
Plan sponsors are becoming more informed and that’s a good thing. I don’t know if we will ever know a time where all plan sponsors will be diligent in their fiduciary responsibility perhaps that will be the day after we achieve world peace. Yet as time passes by, I am convinced that as a whole, plan sponsors will become more sophisticated over time because I doubt that will all the information and litigation out there, that will get less diligent in their duties.
In what I think is one of the greatest movies of all time, The Shawshank Redemption, Morgan Freeman’s character, Red said: “Oh, Andy loved geology. I imagine it appealed to his meticulous nature. An ice age here, million years of mountain building there. Geology is the study of pressure and time. That’s all it takes really, pressure, and time.” I guess Red would say the same thing about the knowledge of plan sponsors, it will grow because of pressure (bear markets, more litigation, and more retirement plan information) and time.