For Hire: Which Investment Professional is Right for My Plan?

For Hire: Which Investment Professional is Right for My Plan?

| March 01, 2018

Are you considering sponsoring a retirement plan for your employees? Perhaps you already sponsor a plan and would like additional help making decisions, such as choosing the best investments for your participants and their beneficiaries. Selecting an investment professional to help with your retirement plan is an important fiduciary matter—that’s why it’s crucial to understand the types of professionals available and how to choose the best one for your plan.

Here, you’ll learn about:

  • ERISA fiduciaries and their duties.
  • The types of investment professionals available for your plan, and their fiduciary responsibilities.
  • How to hire and monitor an investment professional.

What does it mean to be an ERISA fiduciary?

As defined by the Employee Retirement Income Security Act of 1974 (ERISA), an ERISA fiduciary is anyone who makes decisions about managing a plan, its investments or the plan administration, or anyone who is paid to provide investment advice to a plan. Plan sponsors, plan trustees, and plan administrators are all considered fiduciaries. The people you hire to provide services to the plan are also fiduciaries if they give investment advice to plan participants or have a say in how plan assets are invested. It’s important to note that you are by default a fiduciary based on the aforementioned actions—regardless of whether this title is in writing—and you are considered a co-fiduciary of other plan fiduciaries.

Fiduciary duties are not to be taken lightly. This set of rules and legal responsibilities is imposed by ERISA (the primary law regulating employee benefit plans) and applies to most employer retirement plans. ERISA requires that plan sponsors hire outside professionals to help with their retirement plan if they do not have the proper expertise needed to operate it.

Investment Professional 

Why should you care about fulfilling fiduciary duties? Failure to meet them can result in fines from the Department of Labor (DOL), excise taxes from the Internal Revenue Service (IRS) of up to 100% of the amounts involved, and even criminal penalties. It can also result in personal restoration of investment losses to the plan. In addition, you can be held liable for other fiduciaries of the plan who do not meet their fiduciary duties. This is why it’s critical—and an ERISA requirement—to hire outside help if you are unable to fulfill these fiduciary obligations.

How do I determine what type of help is best for my plan?

Plan sponsors can enlist the help of outside experts for a variety of plan-related responsibilities...

The type of investment professional you choose is based on your plan’s needs, as well as your comfort level with financial decisions. Plan sponsors can enlist the help of outside experts for a variety of plan-related responsibilities, but most commonly, they need assistance selecting investment options. A rise in the number of lawsuits, as well as changes to ERISA, has prompted many plan sponsors to reevaluate how they select plan investment options. There are three main structures for how investments may be offered to retirement plans, and each has different services and varying degrees of fiduciary protection. To fulfill ERISA obligations, it’s important to know the difference between services provided by registered representatives or brokers, 3(21) investment advisors, and 3(38) investment managers.

Registered Representative

The rundown: A registered representative may be of interest to plan sponsors who are comfortable making all of the plan’s investment decisions themselves, and who have sole responsibility for these decisions. Rather than giving advice—which they are prohibited from doing—registered representatives educate plan sponsors and participants about financial principles, as well as investment products. These professionals may only provide information about products that are suitable to the plan and plan participants.

Fiduciary liability: A registered representative is not a fiduciary and has no responsibility to make, or provide advice on, plan investment decisions. Registered representatives could have a transaction-based relationship with the plan sponsor. Their compensation varies based on the investments chosen, which can give rise to potential conflicts of interest, but it does not violate ERISA because they are not fiduciaries.

 3(21) Investment Advisor

The rundown: This option may suit a plan sponsor who is comfortable making all the investment decisions, with recommendations from the investment professional. A 3(21) investment advisor must put the best interest of the plan and plan participants ahead of his or her own interests. This advisor provides the same education an information as a registered representative, but can also offer specific investment recommendations.

Fiduciary liability:The sponsor and advisor have a co-fiduciary relationship, sharing liability and responsibilities. The advisor makes recommendations, but the sponsor ultimately has the final say. A 3(21) investment advisor becomes a fiduciary by actions such as providing advice, and puts his or her fiduciary status in writing.

3(38) Investment Manager

The rundown:This is an option for a sponsor who wants an investment professional to make all the investment decisions for the retirement plan. An investment manager must put the best interest of the plan and plan participants ahead of his or her own interests.

Fiduciary liability: The investment manager discloses fiduciary status in writing and takes over the investment authority from the plan fiduciary. The plan sponsor’s investment duty is to appoint and monitor the investment manager, and to ensure he or she is meeting the proper requirements. For example, the manager must be a registered investment advisor. Sponsors should review and understand reports and make sure the plan’s procedures are followed, but reviewing or approving trades is not necessary since the investment manager is responsible for all investment decisions for the plan.

How do I hire and monitor my investment professional?

When choosing which type of investment professional is best for your plan, it’s crucial to document your process. This can be completed in four steps: conducting a self-assessment, selecting an investment professional, performing due diligence, and regularly reviewing the hired investment professional or service provider.

STEP 1 : Conduct a Self-assessment

Begin the process of finding outside help by determining what is needed to meet the obligations of your plan. To do so, examine

the following areas:

  • Plan objectives
  • Roles and responsibilities (as the plan sponsor and plan fiduciary)
  • Investment experience (personal and professional, as a fiduciary)
  • Experience of colleagues (who may want to be part of the decision-making process)
  • Risk tolerance (based on ERISA requirements and potential for personal liability)

STEP 2 :Select the Appropriate Investment Professional/Service Providers

Based on the needs you determined in step 1, seek the help of an expert for plan services. In this step, you should determine which type of investment professional is best, whether to use a registered representative, 3(21) investment advisor, or 3(38) investment manager. After reviewing these services and determining your needs, it’s important to research and compare marketplace options. Outside experts can be hired to:

  • Review services – Outside experts can help review disclosures provided by service providers. The disclosures will describe services performed and help identify conflicts of interest.
  • Review compensation – Experts can review service arrangements and disclosures to determine if compensation for services is competitive based on the marketplace and the services performed.
  • Review structure of compensation and fees – Outside experts can be hired to assist with understanding compensation structure, fees and expenses.

STEP 3 :Perform Due Diligence

Once you have determined the services needed and the type of investment professional that best fits your needs, conduct thorough due diligence. This includes reviewing and documenting information about the firm, such as:

  • Financial condition
  • Experience with similar retirement plans
  • Performance record
  • Quality of services
  • Coverage for fiduciary liability insurance
  • Experience and qualifications of professionals who will be handling your plan
  • Litigation or enforcement action taken against the firm

STEP 4 : Review the Service Provider Regularly

After hiring outside help for your plan, it’s important to review the firm’s services and performance regularly. This will help you determine if the service provider is up to standard, or if it should be replaced. Here are some areas of evaluation:

  • Notices received from the service provider about possible compensation changes
  • The service provider’s performance
  • The investments provided or recommended by the service provider
  • Reports from the service provider
  • Actual fees charged
  • Policies and practices, e.g., trading, investment turnover, proxy voting
  • Follow-ups on participant complaints


Hiring an investment professional can help a plan sponsor meet ERISA requirements, which say that plan sponsors must hire outside professionals to help with their retirement plans if they do not have the proper expertise needed to operate them. Plan sponsors can choose from various types of outside help, including registered representatives, 3(21) investment advisors, and 3(38) investment managers. Each of these choices involves different levels of fiduciary responsibility for the plan sponsor. For example, a plan sponsor who wants to go it alone and make all the decisions may feel most comfortable with a registered representative.

On the other hand, a plan sponsor who is not comfortable making the investment decisions may opt for a 3(38) investment manager, who assumes all fiduciary responsibility for the investment decisions. Plan sponsors who want the middle ground in a co-fiduciary relationship may choose a 3(21) investment advisor. No matter what type of investment professional you seek, it’s important to conduct the proper due diligence and regularly monitor the performance of the service provider.

Note from the editor: The Printers 401k® Success by Design Program is a collaboration of 401(k) specialists who assume specific fiduciary duties for your plan. The solution is designed to fulfill your fiduciary obligations, allowing you to continue serving as the plan sponsor without the liability and responsibility. 

Companies that have participated in the Printers401k program have been able to: 

  • Reduced Risk and Work  
  • Lowered Liability and Plan Costs 
  • Improved Plan Operations and Investments 


ContactJoe Trybula CFP®, CPFA® today at  800.307.0376 or to learn more about the Printers401k® program, or request afree Plan Analysis Report which  provides you with a snapshot of your plan investments, costs and plan operations compared to other plans in the industry. This analysis can reveal strengths and areas of concern along with solutions to improve your retirement plan 




This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or

tax advisor for guidance on your specific situation.

1 Directed trustees are generally not considered fiduciaries as defined under ERISA 3(21)(A

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