Fiduciary Best Practices

By Kyli Soto and Joanne Cinalli

Napolean Hill, renowned author of the influential Think & Grow Rich, writes that “Great achievement is usually born of great sacrifice and is never the result of selfishness.” Applying this to the  fiduciary responsibilities of overseeing a retirement plan, we are reminded that we must cast aside our personal interests and don the crown that serves the greater good. The concept may not be Shakespearean in origin, but we hope that fiduciaries' heads rest easy when they diligently follow these best practices.

For a refresher, a fiduciary is any individual or organization who has a legal duty to act in the best financial interests of someone else[1].  In the context of overseeing a retirement plan, this duty may include several key figures within your organization, including the CFO, Finance Director, human resources personnel, and anyone who serves as a voting member of an investment committee or board involved in making discretionary decisions. Your financial advisor or investment consultant who aids in the administration of your plan also bear this responsibility.

Hire a Capable Plan Fiduciaries

Fiduciaries have a multitude of responsibilities in  both their personal lives and professional roles. The intricacies of fiduciary duties may not come naturally to everyone, making it essential to surround yourselves with individuals truly dedicated to this craft. While not all financial advisors are fiduciaries, at Innovest we take great pride in serving in a co-fiduciary capacity for each of our clients. We commit to safeguarding your financial well-being and prioritizing your best interests throughout our partnership.

Conduct Regular and Consistent Meetings

The phrase, “consistency is key,” applies to the role of a fiduciary. We suggest that your committee meets regularly – quarterly  at a minimum but at least annually. These sessions do not have to be lengthy and arduous, but establishing a regular cadence for reviewing investment performance, expenses, plan service providers, and operational administration of the plan (auditing & testing) is imperative to the successful management of your retirement plan.

Ensure that Fees are Reasonable and Necessary

Plan service providers and investment managers typically do not proactively reach out to say, “Hey, did you know you could pay us less?” While is not a surprising, it underscores the importance of dedicating time to keeping plan fees current. One prudent step is  conducting a request for proposal (RFP) or request for information (RFI) every three to five years for your service providers. It does not mean that you must switch providers, but it is prudent to periodically assess fees to ensure they remain reasonable.

Also, consider regular review of the expense of the investments. Innovest provides this through an annual share class review, a cost comparison of current share classes to available alternatives. Plan assets may have reached a minimum threshold that unlocks access to a lower cost share class or new share classes may have become available. Seizing the opportunity to reduce investment fees should be a continual effort.  Every penny saved in investment expenses is a penny that a participant retain for their balance, which will grow and compound over time when put to work effectively.

Have a Prudent Process

Fiduciaries shoulder a range of essential responsibilities, including the selection and monitorization of investments and service providers, fee monitoring, and ensuring plan compliance with all applicable rules and regulations. How can one effectively manage all of these duties? The answer lies in the old adage that “practice makes perfect.” Fiduciaries must approach their role with thoughtfulness along with an understanding of the investments within the plan and the quality of recordkeeping services. Being a fiduciary is not about having a crystal ball, although we have received more than one request for one. Rather it is acting as a prudent investor. That means gathering the information necessary to make a decision and evaluating the facts and circumstances existing at the time, not relying on hindsight. An Investment Policy Statement (IPS) stands as a critical document that illustrates the process a plan is following for selecting and monitoring the investments.

Document, Document, and Document

Establish and maintain a fiduciary file cabinet, whether paper, electronic, or both. Nurses and doctors know the phrase, “If you didn’t chart it, you didn’t do it.” The same principle applies for fiduciaries. Without proper documentation, it is challenging to ascertain whether something ever occurred. Save copies of essential documents, including investment reports, fee disclosures, meeting minutes, investment policy statement, and similar. Document the key decisions that you make in your regular meetings with summaries or meeting minutes. Innovest also maintains a historical timeline that memorializes those decisions and fiduciary action items, including it in the front of every client performance report to help with that documentation.

Avoid Conflicts of Interest

A plan fiduciary is obligated to be loyal and act solely in the best interests of plan participants and their beneficiaries. It is imperative to ensure that guidance is offered and the advice taken is unbiased. Every investment and service provider should earn their place to work with you and invest your money. Make sure that someone is not gaining undue financial benefit from the decisions your committee makes and confirm that co-fiduciaries genuinely align with your goals and objectives, sitting firmly on your side of the table.

[1] Consumer Financial Protection Bureau