More broker-dealer firms are looking to win over retirement plan advisers with automated 3(38) fiduciary platforms that they believe will give advisers an edge in gaining plan sponsor clients.
Cetera Financial Group in June, for example, launched a 3(38) platform for its more than 5,000 investment adviser representatives using Mesirow Financial as its technology provider, while Merrill Lynch introduced a similar platform using its own technology for some 4,100 advisers specializing in retirement plans in March. Other 3(38) platforms were rolled out by Commonwealth Financial Network late last year and Raymond James Financial Inc. last summer.
The firms are following the lead of early providers LPL Financial LLC, which introduced a 3(38) fiduciary platform for advisers serving small retirement plans in late 2016, and Morgan Stanley, which launched its service in March 2017.
The platforms — offered through the firms' RIAs — allow advisers to relieve plan sponsor clients of having to select and monitor plan investment as is required of them if they decide not to outsource to a 3(38) fiduciary. Advisers have typically taken on a lesser 3(21) fiducia- ry role in which they provide sponsors with investment recommendations for plan lineups but stop short of executing those recommendations as they do not have the discretion to do so.
The automated platforms simplify the task of fiduciary investment oversight for advisers, while giving them an additional service that they can provide to plan sponsor clients seeking to relinquish their 3(38) responsibilities. Sponsors of small retirement plans — those served by the advisers the broker-dealers are trying to reach — often don't have the time, training or knowledge to select and monitor plan investments, said Mathew Powers, manager of Commonwealth's retirement consulting investment services in Waltham, Mass.
"It can be a struggle for plan sponsors to approach their investment oversight duties," he said.
Sponsors that do outsource their 3(38) fiduciary role, however, still need to monitor their 3(38) managers as they would any other service provider or face the risk of being sued for breach of fiduciary duty, said Linda Haynes, a Chicago-based partner in law firm Seyfarth Shaw LLP.
"You're still responsible for not only the decision to hire that 3(38) but also too you're responsible for the ongoing decision to continue to use that 3(38)," Ms. Haynes said. "You need to periodically get reports from them about the performance of the (investment) options and periodically benchmark their fees."
In essence, the platforms develop investment lineups for plan sponsors, changing investments with the sponsors' record keepers.