Transcript Managing Your Fiduciary Responsibilities and Retirement Consulting

Managing Your
Fiduciary Responsibilities
Kevin Handford, CFP®, ChFC®, CFS®, AIF®
7 Hotel Street, Warrenton, VA 20186
540-349-0700
Securities and Advisory Services offered through Commonwealth Financial Network®,
Member FINRA/SIPC, a Registered Investment Adviser.
Rev. 04/10
The Current Environment for Plan Sponsors
Arbitration and litigation for breach of fiduciary responsibility are running at an all-time high
More than 1,300 cases at circuit court level; 13 at the U.S. Supreme Court level
Fiduciaries are now being measured on the results of the
participant experience
The Employee Benefits Security Administration has hired
1,000 new enforcers
37% of employers don’t consider themselves to be plan fiduciaries*
*Source: AllianceBernstein, Inside the Minds of Plan Sponsors
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Recent Litigation
Braden v. Wal-Mart Stores, Inc.
• A plan fiduciary has a duty to disclose material information, including revenue sharing, when such information is
material to a participant
Jones v. Harris Associates L.P.
• Individual mutual fund investors allege that a mutual fund advisor violated the Investment Company Act of 1940
by charging excessive fees compared to institutional investors
Martin v. Caterpillar, Inc.
• Caterpillar agreed to pay $16.5 million to settle a lawsuit that alleged its 401(k) plans charged its employees
unreasonable and excessive fees
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Participant Concerns
Individuals bear more responsibility for funding their
own retirement
• Less reliability on social security
• Discontinuation of company pensions
53% of retirement plan participants have not done a retirement needs analysis
77% claim to have little, basic, or no investment understanding
33% over age 55 have less than $25,000 set aside
for retirement
Source: Employee Benefit Research Institute, 2008
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Managing Your Fiduciary Responsibilities:
Who Is a Fiduciary?
Anyone who:
• Exercises discretion, authority, or control over the management or disposition of plan assets
• Provides investment advice for a fee or other compensation
• Has discretion or responsibility for plan administration
Examples include:
• Plan trustee(s)
• Employees of the company
• Investment committee members (as well those who select
committee members)
• Investment advisers
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Primary Fiduciary Responsibilities Under ERISA
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Act solely in the
interest of
participants and
beneficiaries
Demonstrate
prudence
Diversify plan
assets
Follow plan
documents
Pay only
reasonable plan
fees and expenses
Avoid conflicts of
interest
Prohibited Transactions
Fiduciaries cannot:
• Act in a capacity other than on behalf of the plan and its participants
• Invest plan assets for their own account
• Deal with plan assets in the fiduciary’s own interest
• Engage in transactions with a party whose interests are adverse to the interests of the plan
• Fully delegate away their fiduciary responsibility
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Breach of Fiduciary Responsibilities
Fiduciaries who do not follow these standards of conduct can be:
• Personally liable for restoring any losses to the plan from their own assets, including:
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Homes
Bank accounts
Investments
Stock options
• Required to reimburse any profits as a result of their actions
• Subject to financial or civil penalties equal to 20% of the amount recovered from the fiduciary
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WAYS TO MITIGATE RISK ASSOCIATED WITH
YOUR FIDUCIARY RESPONSIBILITIES
Fiduciary responsibilities can be shared but cannot be delegated
Establish an Investment Committee
Identify the right people
• Members should have relevant experience
• Led by CEO or CFO
• Senior members of HR, Finance, and Operations
Appoint between 3–7 individuals
Include both permanent and temporary members
Meet on a regular basis (e.g., annually or quarterly)
Document the criteria and process used to select and monitor committee members
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Duties of an Investment Committee
Responsible for the selection and ongoing monitoring of
investment options
Develop an investment policy statement
Establish procedures for selecting and monitoring
investment options
Evaluate investment manager’s performance and take
appropriate action
Select and remove investment managers
Evaluate investment-related fees paid by the plan and
participants annually
Benchmark the plan every 2–3 years
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Develop a Written Investment Policy Statement (IPS)
Defines the purpose and process for selecting investment options
Describes:
• The roles and responsibilities of the individuals or committee responsible for selecting investments
• Criteria for selecting investment options
• Asset classes permitted and/or restricted in the plan
• Standards and benchmarks of the plan’s investment performance
• Policies and procedures associated with hiring, monitoring, and/or replacing investment managers
• Policies and procedures for monitoring and controlling
investment expenses
Review for changes at least annually
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Qualified Default Investment Alternative (QDIA)
Appropriate for any plan
3 standard categories
• Age-based or target-retirement
• Balanced
• Managed
Assets must be invested in a QDIA
Participants must be given an opportunity to provide investment direction but fail to follow through
QDIA notice must be furnished to participants at least 30 days
prior to the first investment
Auto-enroll
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Implement a Fiduciary Process
Establish written procedures
Document all plan-related decisions, including all investment committee meeting minutes
Create a Fiduciary Audit File
• Plan documents
• Form 5500 and other associated financial statements
• IPS
• Committee meeting minutes
• ERISA Fidelity Bond
• Participant communications
• Third-party services
• Plan procedures
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ERISA 404(c)
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Offers protections to plan fiduciaries for the results of investment choices made by participants
404(c) requirements:
Permit participants to exercise control over the investments in
their accounts
Offer a broad range of investment options—at least three of which
have different risk and return characteristics
Allow participants to reallocate funds at least quarterly (daily
exchanges are now more typical)
Provide employees with adequate information about the
investment options
Steps You Can Take to Help Comply with ERISA 404(c)
Notify participants that the plan intends to comply with 404(c) and that they will be allowed to direct their investments
Give participants access to and control over their accounts
Offer at least three core investments
Provide sufficient education to help participants be prudent investors
Designate a default fund that meets the requirements of a QDIA
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Fiduciary Bonding and Insurance
ERISA Fidelity Bond
• Provides protection to a plan against loss by reason of acts of fraud or dishonesty on the part of a fiduciary
• Every fiduciary and person who handles funds is required to be bonded
• The amount of the bond is 10% of the amount of the plan’s assets as of the beginning of the fiscal year
• Maximum amount is $500,000 ($1 million for plans with company stock)
Fiduciary Liability Insurance
• Not required by ERISA
• Every fiduciary of an ERISA plan should consider obtaining fiduciary liability insurance, as fiduciaries can be
personally liable for losses incurred by a plan due to their breach
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Next Steps
Identify and/or evaluate plan fiduciaries
Establish an investment committee
Develop an IPS
Establish a fiduciary documentation process
Review and evaluate plan fees and expenses
Assess plan services (administration, recordkeeping, investment management, employee communications)
Create a location or file to store all plan-related documents
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The Handford Financial Strategies Consulting Difference
Enhance
Help Protect
Investment Opportunities
Fiduciaries From Financial Loss
Maximize
Benefits for Plan
Participants
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Ensure
Help Minimize
Plan Efficiency and Compliance
Total Plan Costs
Let us help you manage a better retirement plan.
Handford Financial Strategies
Kevin Handford, CFP®, ChFC®, CFS®, AIF®
7 Hotel Street, Warrenton, VA 20186
540-349-0700
Handfordfinancial.com
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Handford Financial Strategies
Retirement Plan Consulting Services
Helping Keep Your Firm’s Plan on Course
7 Hotel Street
Warrenton, VA 20186
Advisor Disclosure
Securities and Advisory Services offered by Commonwealth Financial Network®,
Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services
offered by Handford Financial Strategies are separate and unrelated to Commonwealth.
Table of Contents
How We Work with You
How We’re Different
The Handford Financial Strategies Advantage
Helping Maximize Your Fiduciary Protection
Putting Our Investment Expertise to Work for You
Designing a Plan to Help Maximize Satisfaction
Helping Your Employees Make Better Decisions
Our Firm
A Team Dedicated to You
Some of Our Clients
Client Experiences with Our Company
Our Broker/Dealer
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How We Work with You
We are dedicated to:
Seamless Integration
Creating a reliable, seamless experience and improved
outcomes for retirement plan sponsors and employees
Vendor
Management
Implementing process-driven strategies to help you
limit your fiduciary liability
Acting as your guide to help you manage changes
in the regulatory environment
Participant
Services
ADVISOR
Investment
Expertise
EMPLOYER
Offering advice and education to improve the
retirement readiness of your employees
Plan
Design
Regulatory
Compliance
Helping you manage your relationships with
third parties
Fiduciary
Oversight
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How We’re Different
Independence: What Ours Means for You
Our objectives are aligned with your best interests and those of your employees.
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An objective viewpoint
Investment advice and selection free from proprietary conflicts
A fully transparent fee structure
Unbiased vendor and investment recommendations
Expertise: Specialized Designations That Benefit You
We’re committed to standards of investment fiduciary excellence.
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Accredited Investment Fiduciary® (AIF®)
The leading designation for investment fiduciaries for both individuals and retirement plans
Chartered Retirement Plans SpecialistSM (CRPS®)
Signifies a thorough understanding of the administration of retirement plans for
businesses and their employees
The Handford Financial Strategies Advantage
Our primary goal is to help you manage risks, ensure that your plan delivers optimum
investment options and services, and improve employee retirement readiness.
Maximize Your Fiduciary Protection
We acknowledge a written fiduciary status.
Enhance Investment Opportunities
We recommend an investment lineup that aligns with plan objectives.
Manage Plan Costs
We evaluate and monitor provider fees and services
for reasonableness.
Optimize Plan Efficiency and Ensure Compliance
We focus on operational aspects, including plan eligibility,
contribution modeling, and compliance.
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Improved Retirement Readiness
We create a customized employee
education program and offer
individualized investment advice.
Helping Maximize Your Fiduciary Protection
As risk management specialists, we share your fiduciary responsibilities. We stand by you
to help mitigate the potential risks and liabilities of a changing retirement plan landscape.
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Serve as a named co-fiduciary to the plan
Formalize investment committee protocols
Conduct ongoing fiduciary reviews
Manage a fiduciary audit file
Provide guidance on regulatory changes
Putting Our Investment Expertise to Work for You
We follow a proven, documented process to review investment offerings aimed at enhancing
investment outcomes.
Investment Policy
Statement
Establish guidelines
for making investment
decisions.
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Investment
Analysis
and Selection
Evaluate the investment
portfolio and recommend a
balanced lineup that offers
broad diversification across
asset classes.
Diversification does not assure against market loss, and there is no guarantee
that a diversified portfolio will outperform a nondiversified portfolio.
Ongoing
Assessment and
Review
Conduct periodic
investment reviews to
ensure that performance
and expenses remain
consistent with plan
objectives and in
accordance with the IPS;
deliver written report.
Benchmark
Compare the plan
to industry averages
to identify areas
for enhancement.
Designing a Plan to Help Maximize Satisfaction
We focus on designing a plan that can streamline your administrative responsibilities,
maximize plan provisions, and promote employee satisfaction.
Plan Design
Employer contribution modeling and analysis
Review of plan eligibility and distribution provisions
Optimal use of “safe harbors,” such as 404(c) and default alternatives
Compliance with legislative and regulatory changes
Vendor Management and Due Diligence
Ongoing fee benchmarking and analysis against other vendors and plans
Vendor search services, including:
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Gathering responses, data, and pricing from several plan providers
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Analyzing costs, services, and investment choices
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Facilitating finalist meetings
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Helping Your Employees Make Better Decisions
We provide advice and education to help your employees understand plan options, encourage
participation, promote satisfaction, and feel confident about the decisions they are making
toward their retirement readiness.
• Employee education program tailored to your specific needs
• Annual written communication plan
• Annual employee education calendar, including enrollment
meetings and broad financial planning education
• Individualized investment advice
• Effective utilization of online tools and resources
• Ongoing assessment to track progress and measure results
Retirement Readiness
at a 20-Year Low
•50% of workers are “not at all”
or “not too” confident about
having enough money for a comfortable
retirement.
•56% of workers report total savings and
investments of less than $25,000.
Source: Employee Benefit Research Institute 2011
Retirement Confidence Survey, March 2011, ebri.org.
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Our Firm
Handford Financial Strategies was founded in 2002 by Kevin and Jennifer
Handford. After working with a nation-wide investment and insurance firm for the
twelve years prior, Kevin and Jennifer felt the need to branch out on their own so
that they could advise clients in a truly non-proprietary, objective, and
independent manner. We focus on two main areas.
1. Comprehensive Financial Planning for individuals and business owners with a total
net-worth of 1 million or more.
2. Helping to design and monitor corporate retirement plans on a fiduciary level.
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A Team Dedicated to You
Kevin Handford, CFP®, ChFC®, CFS®, AIF®
Kevin earned his Economics degree from Virginia Military Institute in 1990 and has 21 years of financial industry
experience. He holds the CERTIFIED FINANCIAL PLANNER TM, Chartered Financial Consultant (ChFC®), Certified
Fund Specialist (CFS®), and the Accredited Investment Fiduciary ® (AIF®) registrations.
Jennifer Handford
Jennifer earned her B.S. and M.S. from Portland State University in 1993 and 1995. She has over 15 years of
experience in the financial services industry .
Lucy Zimmerman
Lucy began working with Handford Financial Strategies in March 2011 as a Client Service Assistant. Lucy graduated
from Hollins University in 2008 and received her B.A. in English and Sociology. Lucy has her Registered
Paraplanner's™ certification through the College for Financial Planning.
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Our Broker/Dealer
We partner with Commonwealth Financial Network®, established in 1979
The nation’s largest, privately held independent broker/dealer
• Freedom to allocate resources where they’re needed and to act in the best interests of advisors
and their clients—not shareholders.
More than $5B in assets in qualified retirement plans as of December 31, 2010
Infrastructure designed to work the way we do
• Investment choice, service, technology, and security
Ranked “Highest in Independent Advisor Satisfaction among Financial Investment Firms” in the
J.D. Power and Associates 2010 Financial Advisor Satisfaction StudySM.*
*Commonwealth Financial Network received the highest numerical score in the independent advisor segment in the proprietary J.D. Power and Associates 2010 Financial
Advisor Satisfaction StudySM. Study based on 2,863 total responses and measures overall financial advisor satisfaction among advisors registered with the Financial
Regulatory Authority (FINRA) investment firms. Proprietary study results are based on experiences and perceptions of financial advisors surveyed in February–June and
July–August, 2010. Your experiences may vary. Visit jdpower.com.
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