Every year, I look forward to college basketball season—the competitive spirit, the brackets, and the hope that my alma mater will make it to the playoffs. (Go Hoos!) After six years of playing basketball and many more as a fan, I’ve discovered that many strategies used by winning coaches can also bring positive outcomes in the retirement plan arena.
In sports, a quality coach brings a deep understanding of the game, insights into player roles, and the authority to teach and enforce the rules. Similarly, by acting as fiduciary coaches, financial professionals can develop partnerships and a strategic game plan with plan sponsors. Many Vanguard clients rely on their financial professionals for coaching in many areas, including investment selection, plan design, and fiduciary compliance. Senior ERISA consultant and manager in Vanguard Strategic Retirement Consulting, David Burns, provides additional insight on fiduciary best practices in his 2015 article, From committees to costs: 5 key areas of fiduciary focus.
Just as coaches strive to lead their teams to the championships, financial professionals guide clients toward the goal of fiduciary success. Here are five coaching strategies to help plan sponsors effectively satisfy their fiduciary duties.
- Draft an all-star investment committee. Financial advisors can help plan sponsors ensure that their investment committees include qualified players who understand their responsibilities and have the appropriate experience to fulfill their fiduciary duties. Committees should document all processes, retain all documentation, and schedule regular meetings to maintain transparency and help identify areas of possible improvement.
- Create a playbook for selecting and monitoring plan investments. When a plan sponsor or investment committee lacks the expertise, experience, or resources to serve as a fiduciary, they often turn to advisors for support. Advisors should work with the sponsor’s investment committee to establish an investment process that starts with a written investment policy statement (IPS). Creating an IPS helps a sponsor to define their investment game plan and commit to a disciplined investment review process. If there is an IPS in place, advisors should review it with the committee on a regular basis.
- Serve as plan referee. Fiduciaries must make sure the plan is being administered in accordance with the plan document and the provisions of the current law. Advisors should partner with recordkeepers to make sure that all of the plan’s rules and provisions are being properly administered.
- Keep score of plan costs. It’s important for plan sponsors and participants to understand the value they’re receiving from their retirement plan. The Department of Labor issued a mandate in recent years requiring sponsors to disclose plan-related fee information to participants annually. Advisors can help review the overall value of the services provided to assess whether fees being paid are reasonable.
- Be a loyal team player. ERISA fiduciaries are subject to heightened standards of conduct because they’re acting on behalf of plan participants. By acting solely in the interest of participants and with the exclusive purpose of providing benefits, fiduciaries can help avoid a personal liability that may result from a breach of duty. Advisors can help fiduciaries comply with plan provisions to ensure consistency with ERISA Section 404(c) by conducting periodic reviews and offering a qualified default investment alternative (QDIA) in the plan lineup.
Running out the clock
One big difference between basketball and retirement planning is the clock. In sports, you know exactly how much time you have left to maintain your advantage or win. In the retirement planning arena, the fiduciary meter runs continually. Plan sponsors who “set it and forget it” run the risk of breaching their fiduciary responsibility. Advisors can help clients design a game plan that minimizes liabilities and obstacles while maximizing plan effectiveness.
Talk about a game changer
Vanguard offers tools and resources in our Plan Advisor Resource Center to help plan sponsors understand their fiduciary responsibilities and how financial professionals can support them. You can download our fiduciary toolkit which includes an easy-to-follow checklist, sample IPS, and a customizable plan design optimization guide. Vanguard can work closely with financial professionals to ensure they have the tools they need to help plan sponsors minimize risk, achieve positive plan results, and apply best practices for investment committee decision-making.
- All investing is subject to risk, including the possible loss of the money you invest.