MORE MYTHS IN FIDUCIARY CONSULTING By: Gabriel PotterMBA, AIFA® 2013.08.21

Since the September newsletter is on the Biggest myth of investment consulting, let’s focus on some different myths…

Myth:  For 401(k)s and other defined-contribution plans, the employees are solely responsible for their own retirement.

Fact:   This is untrue.  The original perception is that an investment committee is primarily charged with selecting the line-up for a company’s retirement plan.  However, simply selecting prudent investments to include in a plan is no longer enough.  The new standard is outcome-based, meaning that employees’ final outcome (i.e. - the adequacy of their retirement) is often a shared responsibility with plan fiduciaries.  So, depending on the scope of their responsibilities, a plan committee or investment committee may engage with recordkeepers, advisors and other investors to lead employees to an appropriate retirement, all at a reasonable cost to the plan.  In other words, defined contribution plan fiduciaries may need to demonstrate how they are educating employees to save enough for retirement, and guiding employees to appropriate investments, given their unique time-horizon and risk profile.

Myth:  For foundations, endowments, and other charitable organizations, the high standards set by ERISA do not apply, so there are fewer legal benchmarks to reach.

Fact:   Charitable organizations have different benchmarks, not necessarily lower ones.  ERISA may not apply, but charitable organizations are often subject to state standard requirements, such as New York’s version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA).  Furthermore, the trends have supported greater convergence between legal requirements and standardization across the investment landscape.

A charitable organization often relies upon continued support from the community to succeed in their mission.  A charity must hold themselves to the high standards of peers and they must demonstrate that they are acting as a good steward of the community’s hard-earned dollars, time, and good-will. 


Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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