Relying on a Broker for Investment Advice.

Many plan sponsors are under the delusion that if they are working with a broker this protects them from any liability. 

Example: Joe the employer and Bob the broker.

Joe Employer works with his friend Bob the broker at finding a retirement plan for his company.  Bob, wanting to make a sale and knowing this plan isn’t high on Joe’s desirable “to do” list, says he’ll take care of all of the work….which includes designing the plan, making the allocations, and designing the investment strategy.  Because Bob is a professional in the financial services business and has called himself an advisor, Joe believes this will shelter him from fiduciary liability. 

The reality.

This will in fact provide little protection.  Joe Employer is still the fiduciary to the plan and not the broker.  Bob the broker, throughout the process has never agreed to take on co-fiduciary responsibilities, and in fact may not be able to do so for a number of reasons. Joe Employer is still responsible for monitoring and analyzing all costs and the commissions.  He is responsible for overseeing the plan and making sure the broker is not charging excessive fees and to make sure other costs in the plan, visible and hidden are within reason.  Simply put, Bob the broker works for the broker dealer not for Joe Employer and it’s Joe’s job to police Bob the Broker, Bob’s company and Bob’s broker dealer.  So working with a broker does not relieve a plan sponsor of fiduciary duty.

The Take Home

Even if your Broker represents well known companies and plans……many will not take on your fiduciary responsibility.  Face it, who really wants to take any more liability than necessary?  Some may imply they do, but at the end of the day, it’s up to you to verify whether they meet the standard.