Fiduciary Associates Services Overview
3047 Lincoln Avenue Suite 400 Chicago, IL 60657 (T) +1 312 265 3973 (F) +1 312 878 1656 www.fiduciaryassociates.com
Corporate Retirement Plan Solutions
Firm Overview
Fiduciary Associates
Who We Are
Our Clients
Our Staff
Fiduciary Associates is a comprehensive, independent, objective financial advisory and investment consulting firm. We bring a unique and refreshing attitude to retirement plan and institutional consulting for our clients. We help our clients succeed by taking a step-by-step, consultative approach.
Fiduciary Associates serves a wide range of clients, providing them valuable direction and strategic insight gained through extensive industry experience and education. The firm primarily advises pensions, endowments, foundations, and affluent families with regard to growing and protecting their financial assets.
Fiduciary Associates is well-equipped to assist plan sponsors with their retirement plans in order to improve participant outcomes and reduce fiduciary risk.
As a firm, we bring value to clients by delivering an institutional level of service driven by extensive industry experience.
No matter how big or small, all of our clients enjoy a full suite of services including weekly market commentaries, monthly newsletters, and practical event seminars hosted by the firm.
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Our staff is composed of seasoned investment professionals who possess extensive industry experience with some of the most well- recognized names in the industry.
Firm Overview
Member firm of the Retirement Plan Advisory Group, controlling more than $86 billion in collective retirement assets.
Extensive industry experience
Retirement plan experts
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Our Approach
“We take a very practical, understandable approach to retirement plans.”
• Examining fees • Fiduciary Protection • Participant Advice
A large part of our efforts is directed toward building a solid foundation for our clients’ retirement plans. No two clients have the same situation. We build strategies that are based on what each particular client needs. At Fiduciary Associates, we focus on the core areas of the plan: 1.) Investments 2.) Expenses 3.) Risk We also provide ongoing investment advice and education to enhance each of these individual areas, increasing the chances of successful retirement outcomes for plan participants.
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Our Role
The three core areas of plan management Whether you are converting your plan, updating your investment options, or fine-tuning on an ongoing basis, our role is to provide top-level guidance to your company’s management on all aspects of plan operations. 1
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Investments
Risk
Education
• Investment Policy Statement development & review
• Plan design consulting
• Enhance and maintain ongoing education and communication
• Fund menu design • Investment manager/ Mutual fund search and evaluation • QDIA selection/review
• Plan review, fee analysis, and industry benchmarking • Vendor evaluation, search, and selection
• Maximize participation in the plan • Retirement guidance
• Regulatory and industry trend updates
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Investments
“Choosing and monitoring suitable investments to offer in your plan is a serious task, as it can impact a participant’s retirement experience.” We provide the tools to assist you with this important fiduciary responsibility.
Plan Design
Diversification
Investment Monitoring
Fiduciary Associates will perform a comprehensive analysis of the quantitative and qualitative components of your current investment line-up.
By law, plan sponsors and fiduciaries are charged with a duty to diversify to at least a minimum level.
Our goal is to maximize successful retirement outcomes for plan participants over the long term.
Reducing the correlation between asset classes within the plan is something that needs to be given a large amount of attention, as it is compliance related within the scope of ERISA and will be enforced by the Department of Labor.
Through ongoing risk management and due diligence, we are constantly evaluating each investment option and how its risk/ return profile fits in with respect to the entire portfolio.
Our consultants will be able to determine the suitability of the investment options with regard to the plan’s specific investment goals and objectives. Fees related specifically related to the investment options will also be weighed to determine if they are reasonable for the current level of performance and service.
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Fiduciary Associates specializes in creating investment menus that are well-diversified and easy for participants to understand.
We strive to minimize the variability of plan performance and reduce exposure to inflation, allowing investment returns to compound over time.
Percentage of employers that addressed diversification among the top 3 considerations when selecting an investment service provider or adviser. (A report by World at Work and the American Benefits Institute, March 2013)
Investments
Less than 40% of plan sponsors are aware that their advisers are not acting in a fiduciary capacity to the plans they manage. 1 1 Blackrock Investor Watch, 2012
1 out of 5 companies offer cash & debt management education to their employees. 1
1 World at Work & The American Benefits Institute, March 2013
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Plan Expenses
Balancing Cost, Services, & Investment Opportunities
Evaluating several plan provider services, weighing all possible investment opportunities, and benchmarking total plan fees can overwhelm even the most diligent plan sponsor. Plan expenses can be one of the largest determinants of success in a company’s retirement plan. Careful consideration not only needs to be given to the expense ratios of the investment options, but also to the level of fees paid to all service providers in order to ensure they are reasonable of retirement plan sponsors with regard to plan size and peer group. do not have a written plan fee
46%
We shoulder this responsibility by providing thorough market analysis, guidance and support throughout the entire process.
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policy statement.
Source: 2013 Defined Contribution Trends, Callan Investment Institute
Important Legislation
Fee Transparency & Fiduciary Duty “Since retirement plan sponsors can be held personally liable as a fiduciary, it is very important to remain aware of recent developments in regulation and their implications.” Last July, the Department of Labor specifically enacted two new regulations that impose additional responsibilities on plan sponsors and covered service providers in the continued effort to protect the interests of plan participants.
In late 2012, 408(b)(2) of the Employee Retirement Income Security Act (ERISA) was passed requiring plan fiduciaries to actively monitor the activities of their Covered Service Providers (CSP), ensuring that services received are reasonable for the fees being charged. Further, these regulations mandate that Covered Service Providers provide information to plan fiduciaries necessary for them to assess the reasonableness of compensation, identify potential conflicts of interest, and satisfy reporting and disclosure requirements. Plan sponsors and fiduciaries are personally liable for any failure to procure the required information from CSPs. 404(a)(5) regulation was also passed, requiring fiduciaries of participant-directed plans to provide specific information to participants. This enables participants to make informed investment decisions with regard to plan, administrative, and individual expense information. By benchmarking your plan, we can reduce fiduciary liability, quantify all the fees you are currently paying, and determine if such fees are reasonable for services rendered. We compile and compare key data points to plans with similar design and demographics, identifying opportunities to lower costs, increase service, and reduce your fiduciary exposure as a plan sponsor/trustee. Plan fiduciaries often lack specialized knowledge of the retirement industry necessary to satisfy these requirements. Fiduciary Associates assists its clients by incorporating benchmarking services into a prudent plan review process intended to satisfy the requirements of ERISA. A spate of recent lawsuits have sought to impose liability on plan sponsors for “unreasonable” fees charged to plan assets and participant accounts by service providers such as investment managers, record keepers and plan administrators. Plan fiduciaries have a duty to know what your plan is paying for services and whether or not such fees are reasonable.
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Fiduciary Liability
What is a Fiduciary? In 1974, Congress enacted the Employee Retirement Income Security Act (ERISA) requiring that plan fiduciaries act prudently and solely in the interest of the plan's beneficiaries. It also prohibits self-dealing, and provides judicial remedies when violations of these standards cause harm to plans. The Employee Benefits Security Administration (EBSA) has proposed a rule to recast an existing regulation to better reflect relationships between investment advisers and their employee benefit clients.
Who is considerd a Fiduciary to retirement plans? ERISA requires that the Plan identify one or more named fiduciaries in the Plan document. Named fiduciaries are typically plan administrators and plan trustees. The named fiduciary has authority to control and manage the operation and administration of the Plan. ERISA also provides that a person is a fiduciary with respect to the Plan to the extent of the duties and responsibilities that the person exercises any discretionary authority or control with respect to management of the Plan or the disposition of assets. ERISA also states that an individual that renders investment advice to a Plan for a fee or individuals that have discretionary authority or responsibility for administrating a Plan are fiduciaries.
3(21) vs. 3(38) Fiduciary
. a fiduciary under Section 3(21) if he or she exercises any authority or control over the An individual is management of the plan or the management or disposition of its assets; if he or she renders investment advice for a fee (or has any authority or responsibility to do so); or if he or she has any discretionary responsibility in the administration of the retirement plan. Section 3(38) defines “investment manager” as a fiduciary due to their responsibility to manage the plan’s assets. ERISA provides that a plan sponsor can delegate the responsibility (and thus, likely the liability) of selecting, monitoring and replacing investments to a 3(38) investment manager/fiduciary. A 3(38) fiduciary may only be a bank, an insurance company, or a registered investment adviser (RIA) subject to the Investment Advisers Act of 1940. Both 3(21) and 3(38) advisers accept fiduciary responsibility and adhere to their duty under ERISA to serve solely in the interest of plan participants, and both have to meet the “prudent man” standard of care. Plan sponsors retain the responsibility to select and monitor the adviser, regardless of their adviser’s fiduciary status.
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3(21) ·State in writing co-fidcuary status ·Assists in drafting IPS ·Helps design intial fund menu ·Provides monitoring ·Recommends changes ·Recommends mapping stratgies ·Provides documents
3(38) ·State in writing co-fidcuary status ·Drafts IPS ·Builds intial fund menu ·Monitors menu ·Makes changes ·Determines mapping stratgies ·Provides documents
Our Process
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Participant Education
“At Fiduciary Associates, we believe in pro actively educating and advising plan participants.� Participants that are better informed will feel more confident about their investment choices, more content with their level of risk, and most importantly, more prepared for retirement.
42%
of plan sponsors stated that they do not provide specific investment advice to retirement plan participants Source: Grant Thorton Retirement Plan Survey, 2010
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Participant Education
Proactive Approach
Online Investment Advice
Helping participants succeed
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Recent Developments
During 2010, the Department of Labor audited more than 3,100 plans and found that:
More than 73% were required to restore losses to the plan or take another type of corrective action to correct plan deficiencies
FY 2010 resulted in the collection of $1.05B through plan restoration, fines and penalties
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96 individuals including plan officials, corporate officers, and service providers were indicted for offenses related to their plans
Ryan Clark CIMA, CMFC, AIF
Your Consultants
Director, Retirement Plan Services
A graduate of Miami University in Ohio, Ryan also earned his Master of Science in Finance and MBA from DePaul University’s Kellstadt Graduate School of Business. Ryan has completed advanced financial and retirement plan training and has received his Certified Investment Management Analyst (CIMA®), Chartered Mutual Fund Consultant (CMFC®) and Accredited Investment Fiduciary (AIF®) designations. Ryan has over 9 years of experience in the financial services and investment management industry. Prior to founding Fiduciary Associates, he held responsibilities in the Investment Strategies division of Mesirow Financial as Director of Business Development. During his tenure at Mesirow Financial he also served as a board member for DCIIA (Defined Contribution Institutional Investment Association) and was a member of ASPPA (American Society of Pension Professionals & Actuaries). Prior to Mesirow Financial, Ryan spent time at Morningstar and Ibbotson Associates. Ryan is an avid runner, husband, and father. He maintains a healthy and active lifestyle including running, gym activities, and events with his friends and family.
Kris Sage MBA, MSF
Seasoned Investment Professionals
Institutional Level of Service
VP, Retirement Plan Services
Kris is responsible for developing valuable relationships with our clients. He has enjoyed 7 years of successful experience in the financial services industry where he has taken on important leadership roles on both the retail and the institutional sides of the business.
Client Interests Come First
Kris began his career as a Financial Advisor at Edward Jones Investments before becoming a Credit Analyst for Wells Fargo. Mr. Sage quickly distinguished himself from his peers, resulting in his appointment as a Finance Manager where he managed an $80 million structured receivables portfolio. He continuously strives to create valuable solutions for clients through superior quantitative financial knowledge, outstanding communication, and reliable service. Prior to his current role, Kris served as a Client Relationship Manager at Citigroup assisting institutional clients with risk management. Kris holds a Master of Business Administration in Finance and Marketing Strategy with Distinction from DePaul University’s Kellstadt Graduate School of Business, and a Bachelor’s degree from Illinois State University. He is a Level II candidate for the Chartered Financial Analyst (CFA) and Chartered Alternative Investment Analyst (CAIA) designations, and a candidate in the Certified Investment Management Analyst (CIMA®) certification program.
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Current Plan Overview By performing a thorough analysis of a The Novo Group Company Retirement plan using both a top-down and bottom-up approach, we have identified the following quantitative and qualitative factors:
Investment Menu What we analyzed: The plan investment options in two parts: Portfolio Diversification and Investment Performance. A proper level of diversification is necessary to ensure that the plan’s assets maintain a balanced risk and return allocation through varying market cycles. We then screened each one of the plan’s investment options to a set standard of performance criteria not only in isolation, but we also evaluated how it fits within the context of the entire plan portfolio. This screen grades each investment option as a PASS, WATCH, or FAIL. Pass: The fund continues to monitored, and remains included in the plan investment line-up. Watch: The fund is placed on a watch list & monitoring frequency is increased to mitigate risk. Fail: The fund is recommended for immediate change.
Our research findings: Our evaluation revealed that out of the 22 eligible options on the plan’s current investment line-up, 9 were graded a “WATCH”, and 2 were graded a “FAIL”. (The 2055 Target Date fund was graded N/A due to lack of performance data.) The main reason for this can be attributed is that one of the under performing options (The Bond Fund of America, see Exhibit 1, page 2 of the attached report) is included not only as a stand-alone investment option, but it is also included as an underlying option in the American Funds Target Date Series Funds (see Exhibits 2-11, page 3 of the attached report.) Fixed income is what makes up the conservative allocations of most retirement plans, helping to reduce risk and provide principal protection. Addressing this fund and taking a suitable course of action should be a primary of concern. The Novo Group Company Retirement Plan displays an acceptable level of diversification from an asset allocation standpoint (Equities, Bonds, International, etc.). However, the plan’s investment menu is comprised entirely of American Funds. Recently, plans that have had similar instances of investing too heavily in only one company’s propriety funds are facing increased levels of scrutiny. In Kelley et al. v. Fidelity (1:2013-cv-10222, U.S. Dist. Court, District of Massachusetts, Feb. 5, 2013), Fidelity served as investment manager, trustee, advisor and/or administrator of the plaintiffs’ 401(k) plans. Plan fiduciaries in Tussey et al v. ABB , et. al. (No. 2:06-cv-04305-NKL. (W.D. Mo. Mar. 31, 2012) had to pay plan participants $36.9 million in addition to court fees. Plan fiduciaries are mandated by ERISA with a fiduciary responsibility to diversify; to provide with reasonable record keeping, administrative and investment options; and to monitor that investment performance is consummerate with all associated fees.
Current Plan Overview Plan Expenses What we analyzed: We performed a benchmarking analysis of the plan’s investment and administrative expenses to ensure that that fees are reasonable with plans that are of similar size and peer group.
Our research findings: The Novo Group Company Retirement plan is currently investing in a more expensive share-class (R2, see attached report) than what they are eligible for (R5). In Tibble v. Edison (No. 10-56406 D.C. No. 2:07-cv-05359-SVW-AGR filed March 21, 2013), the US Court of Appeals for the Ninth Circuit held that a company’s 401k plan fiduciaries did not violate their duty of prudence under ERISA by including certain investments in the plan, but acted imprudently in including retail-class shares of some mutual funds because they failed to investigate the possibility of institutional-share class alternatives.
Risk What we analyzed: Our firm is constantly monitoring investment and fiduciary risk on an ongoing basis. At the outset of our engagements, we create an Investment Policy Statement (IPS) with our clients to specify their investment goals, objectives, risk tolerance, and allowable investment asset classes. We evaluated if a plan currently has an IPS in place, and if so, whether it needs to be revised with regard to the plans current needs. Our firm will act as a fiduciary to the retirement plans we manage to the extent of the plan’s investment options and the services we provide. We evaluated who is currently held as a fiduciary to the plan, and who will carry fiduciary responsibility moving forward to ensure the plan sponsor is indemnified from potential participant legal action. We actively perform quarterly performance reviews in addition to sending monthly newsletters regarding recent trends in ERISA related legislation. To further mitigate risk, Fiduciary Associates provides investment education to the retirement plans we serve. Participants that are more knowledgeable feel more confident about the investments they select and the level of risk they take.
Our research findings: Currently, there is no Investment Policy Statement in place. The current investment adviser is not acting as fiduciary to the plan. In addition, it should be noted that one of the plan fiduciaries commented that he has only spoken to the current adviser 2 or 3 times over the past 4 years. Investment education at the participant level is also not being provided.