With global concerns about the COVID-19 pandemic and millions of employees now required to work from home, how will fiduciary governance be impacted? As the stock market peaks and troughs, investors are panicking as they watch their retirement dollars ping pong up and down. It is a tense time for all. However, in this chaos and transition, should other priorities take precedent over the retirement plan committee’s fiduciary responsibility?
Plan Sponsor Response to Chaos
According to Malcolm Gladwell in the book “What the Dog Saw,” he explains that when a crisis happens, people generally respond in one of two ways. They either choke up or panic. When a person chokes up, they overthink a situation. Whereas, when a person panics, they think or act too little.
Choking Up: Overthinking
Looking at this situation through the actions of a plan sponsor, let’s say a plan sponsor client responds by overthinking. They request their advisor to host a daily check-in conference call. They want to know minute-by-minute market updates. Another example would be, if they just completed a thorough recordkeeper RFP and now, they want to re-do it. They want to re-confirm their recordkeeper is the right one for them. Or, they are emailing their retirement plan relationship managers with abstract and black swan “What if” scenario questions.
Then with each and every thoughtful response and reply by their plan advisor, relationship manager, and plan contacts, they pause. They wait. They aren’t ready to make a decision. They want all the answers to feel settled. However, they don’t want to make immediate decisions. The person is deep thinking, methodical, and choking up.
Panicking: Under Thinking
On the other hand, we’ve probably all experienced examples of panicking. Maybe in a worried frenzy the plan sponsor wants to protect the plan’s assets with a flight to safety. They contact their advisor and ask to change all the plan’s investments. They want to add more bond funds, stable value, and/or a money market. Or another example, with all the workplace disruption, the plan sponsor doesn’t see the importance of keeping the retirement plan committee meetings. They push this quarters meeting and want to skip the next quarters. They shirk their responsibility. They stop behaving with prudent oversight and want to put their head in the sand.
Being a Plan Sponsor is an Ongoing Responsibility
In times of chaos, it is best to seek balance and rationality. As a trusted advisor, this is an opportunity to communicate regularly with your clients and help them understand that fiduciary responsibility does not take a sick day. There are very real risks for fiduciary negligence.
It is normal for plan sponsors to have questions and concerns. At this time, it is important that their advisory team is present, helpful, and continues to provide valuable guidance. Encourage your clients to review their current investment policy statement and diversified offering of investment options. Continue to host (virtual) meetings and share plan updates. Discuss the importance of benchmarking reports, plan design analysis, and a long-term mindset.
Remind your clients that retirement plans are long-term investment vehicles. When their participants are investing in down markets, they are actually buying more shares and that is generally a good thing in the long-run. Also, the end goal of a retirement plan is to help their employees acquire assets to fund their future retirement income which means investing in all types of markets.
Additionally, we have weathered the storms of the 2001 tech bubble, the 2008 market crash, the Great Recession, and looking back over all that turbulence, the average growth rate of the S&P 500 still produced positive annual returns.
When we turn the corner of these challenging times, employees will still want to retire.
Encourage your plan sponsor clients to try to think rationally, methodically, and observe the fundamentals. It’s still their fiduciary responsibility to provide oversight of the retirement vehicle that helps their employees get to a dignified retirement. Help them act in the best interest of the plan participants and as a responsible, prudent person because fiduciary responsibility doesn’t take a sick day.
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FBi Tools that Can Help
Value and Fee Benchmarking Report, a peer-to-peer evaluation report that shows a comparison of the existing plan to other similar plans and can provide guidance on how changing certain plan features could help the employer offer a more competitive retirement plan benefit.
Our report follows a 5-step process that is fair and repeatable.
Customize the Benchmark Group. We use numerous factors to build a benchmark group from our proprietary database that is customized for each peer group using mathematical models designed to optimize the degree of accuracy.
Review Service Provider Quality. The DOL has noted in prior rulings that it is allowable to consider the Quality of the Service Provider when determining Fee Reasonableness. We provide a logical framework to analyze this issue.
Assess Scope of Services. We examine the scope of services being provided so plan sponsors can understand how the services they are receiving are impacting the cost structures of the service providers.
Examine Value Delivered. We examine the Value Delivered in terms of helping plan sponsors do their job as a Responsible Plan Fiduciary and to participants in terms of helping them save for retirement.
Evaluate Fees. Finally, we track and compare fees to the Benchmark Group and to FEEPOINT®. FEEPOINT is a proprietary fee calculation designed to account for fiduciary status, extra services and extra meetings that are not found in the typical plan.
Download a sample Value and Fee Benchmarking report by visiting https://www.fiduciarybenchmarks.com/resource-center/
Craig Rosenthal Senior Vice President, Advisor Sales & Service
Craig is responsible for sales, service, product development and partnerships with the Advisor/Consultant, Broker/Dealer, and DCIO channels.