A New Way 2 401k

My 3(38) can beat up your 3(38)

3(38) Fiduciary isn’t always what you think it is

The Fiduciary Roles of 3(21), 3(38) and 3(16) continue to gain a ton of momentum in the retirement plan world. These terms are getting tossed around by retirement professionals like surfers use the terms Dude, Awesome and Totally. BUYER BEWARE: before you start to put these roles into nice tidy, little boxes, you should understand that the roles and responsibilities can vary dramatically. Don’t make the mistake that I did and just assume that adding a 3(38) is always an improvement, or worse that all 3(38) solutions are similar. Many times my job has me in the office of our Financial Advisor partners and I am always curious to learn about their business models, looking for nuggets of uniqueness. Well, I unknowingly have stumbled upon a morphed version of what I thought a 3(38) solution was and would be.

First, let’s define what a 3(38) Fiduciary is….in the simplest terms a 3(38) Fiduciary is someone who has full discretion over the selection, monitoring and replacement of the investment options within a retirement plan. Full discretion being the key component here, meaning they don’t ask the client for permission to make these investment changes. The 3(38) Fiduciary handles these investment decisions on behalf of the retirement plan.

My first experiences around 3(38) solutions involved Financial Advisors, Independent Managers or Recordkeepers offering some type of 3(38) solution where the Plan Sponsor could feel comforted that everything was being handled for them in this crucial and scary area of investment option monitoring. Although most commonly I still see most 3(38) solutions as an addition to regular plan services like fiduciary review meetings, employee education, regulation updates, etc. I am starting to see a new kind of 3(38) solution. Advisors are looking to create efficiency in their business models, which I think is a great idea. I actually discuss this concept of a modern day and efficient Advisor model in episode #4 of the slightly inebriated retirement plan show RETIREHOLIKS (sorry for the plug, let me get back to my post). Some Advisors have built a solution for clients that they call 3(38), but what it means is that the Advisor will actually do less than their typical business model or level of services.

Think about that for a second, it means they will set up all their “3(38)” clients in a similar program with identical core menus, identical IPS, identical fund review systems and process. Basically limiting the face to face responsibilities and offering a service model that is automated. Deliveries to the Plan Sponsor would include quarterly newsletters and market reviews, quarterly fund reports that explain what funds will remain and what funds will be removed and replaced. The Advisors that are doing this will charge less than they charge a typical client, because the way they have built this solution, they will do less. They have built a silo around 3(38) and can offer to their prospects as a stand alone solution.

I am sure my inbox will be crammed with hate email on this post. Advisors and Industry Folk arguing that the services outside of the 3(38) fund review are just as important if not more important. They will hammer home retirement readiness, education, fiduciary process, etc. 
I get it, my first instinct was to shake my head at this approach, but I am a Retirement Plan Advisor supporter and advocate and I think in the end this is an interesting and creative approach to offer clients a different type of service that just might meet some of their needs.

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