• Neal Shikes

An Introduction – Understanding Fiduciary Obligations


Although there should be no confusion about it, the role and accountability of a Financial Adviser/Consultant has always been rather fuzzy. This lack of clarity is especially purposeful to Independent Broker Dealers, Wire-houses, and Insurance Companies because it allows them to limit their potential legal liabilities behind the interpretation and accountability of “suitability”. The regulatory interests that define and monitor this are FINRA and ERISA. The relationship between the firms that benefit from presenting products via suitability and the regulatory interests can become quite strained and adversarial at times and that has materialized recently in the Department of Labor’s recent Fiduciary Duty ruling.

Acting in the best interest of the client, proper security selection and portfolio construction supported by meaningful insights and analytics to make the best solutions visible to a client, has always been a fundamental obligation. In fact, I’m not really clear as to how anyone can provide investment advice in the client’s best interest any other way. It does require, however, a unique set of skill-sets that must be learned in theory and honed through experience. Clients should expect you to act in their best interest and fiduciaries need to honor this expectation. This obligation, which should be rather intuitive, is no different for the legal Employer Plan Sponsor of a Retirement Plan and those designated with discretion in administering and managing it. Both FINRA and the DOL make it very clear that it is in one’s actions and responsibilities that manifests the role as a Fiduciary.

After reviewing and reverse engineering the 5500 tax filings of many large sponsors (and having many conversations with HR benefit representatives, some on the sponsor’s administrative committee) it is clear to me that they do not understand their fiduciary responsibilities. It also seems as if many Plan Sponsors justify their actions via ERISA’s definitions and not the DOL’s. In fact, I don’t believe that most are even capable of acting in the participant’s best interest because they are not trained money managers, product specialists, and cannot apply the proper techniques and analytics to do so. This, in itself, is a breach of fiduciary responsibility because there is no way to supervise the Administrator, Record-keeper, Investment Advisor, Auditor, and all other partners being compensated to implement and execute the Retirement Plan. This, to me, inhibits oversight which is the primary causation of fiduciary breeches.

#FiduciaryAwareness #Oversight #Regulation

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