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Is Your Fiduciary a Chihuahua or a German Shepherd?

“Fiduciary” is a word used frequently in the retirement industry, often to the confusion of plan sponsors and participants. “We have a fiduciary,” some employers tell me when we sit down to talk about their plan. “I am a fiduciary, and I have a fiduciary,” others will say. “We were issued a fiduciary warranty by our provider.” And so forth.

That’s how our discussions on fiduciaries often begin. When we dig in to the specifics of the financial services their hired “fiduciary” offers (and does not offer), many employers are surprised to learn that – contrary to what they were led to believe – their fiduciary does not reduce their responsibility or potential personal liability for selecting or monitoring the investments in their company’s retirement plan.

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Goldilocks and the Three Bonds

Once upon a time, there was a busy company manager named Goldilocks who was lost in the woods of deciding which ERISA bond was right for her company’s qualified retirement plan. She knew that her Worker Bees had to be well protected, but she also knew that it was hard for her to resist a sale!

Enchanted by the idea of a bargain, her curious eyes came to rest upon the Wee Bond. “I’m not sure if it’s the best fit, but it’s so affordable!” she said.

Just as she was about to purchase the Wee Bond, a wee warning tag appeared with wee writing – writing that was so small that she almost missed it in her excitement! The print read, “This Wee Bond has a wee price, but beware - it won’t cover all your Worker Bees!”

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Spreadsheet, spreadsheet – overall, what’s the fairest fee of all?

This witch's brew of hidden fees, conflicts of interest and complexity in applications is at odds with investors' best interests.

- SEC Chairman Chris Cox, speaking on retirement plans

When I sit down with employers to talk about their defined contribution retirement plans – 401(k) and 403(b) alike, they often tell me how their decision to go with X or Y Big-Brand recordkeeper was fueled by their wish to avoid toil and trouble – in particular, high fees and legal liability! Most commonly, X or Y Big-Brand recordkeeper has a national media footprint, and the understandable human tendency to believe that “bigger is better” is at play, at least subconsciously.

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