Managing Your Fiduciary Responsibilities Kevin Handford, CFP®, ChFC®, CFS®, AIF® 7 Hotel Street,...
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Transcript of Managing Your Fiduciary Responsibilities Kevin Handford, CFP®, ChFC®, CFS®, AIF® 7 Hotel Street,...
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
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The Current Environment for Plan Sponsors
Arbitration and litigation for breach of fiduciary responsibility are running at an all-time highMore than 1,300 cases at circuit court level; 13 at the U.S. Supreme Court levelFiduciaries are now being measured on the results of the
participant experienceThe Employee Benefits Security Administration has hired
1,000 new enforcers37% 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 participantJones 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 analysis77% claim to have little, basic, or no investment understanding33% 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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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:
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
WAYS TO MITIGATE RISK ASSOCIATED WITH YOUR FIDUCIARY RESPONSIBILITIES
Fiduciary responsibilities can be shared but cannot be delegated
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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 individualsInclude both permanent and temporary membersMeet 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 statementEstablish procedures for selecting and monitoring
investment optionsEvaluate investment manager’s performance and take
appropriate actionSelect and remove investment managersEvaluate investment-related fees paid by the plan and
participants annuallyBenchmark 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 optionsDescribes:
• 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 expensesReview for changes at least annually
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Qualified Default Investment Alternative (QDIA)
Appropriate for any plan3 standard categories
• Age-based or target-retirement• Balanced• Managed
Assets must be invested in a QDIAParticipants must be given an opportunity to provide investment direction but fail to follow throughQDIA notice must be furnished to participants at least 30 days
prior to the first investmentAuto-enroll
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Implement a Fiduciary Process
Establish written proceduresDocument all plan-related decisions, including all investment committee meeting minutesCreate 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)
• 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
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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 investmentsGive participants access to and control over their accountsOffer at least three core investmentsProvide sufficient education to help participants be prudent investorsDesignate 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 fiduciariesEstablish an investment committeeDevelop an IPSEstablish a fiduciary documentation processReview and evaluate plan fees and expensesAssess 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
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Let us help you manage a better retirement plan.
Handford Financial StrategiesKevin 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 StreetWarrenton, 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.
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How We Work with YouHow We’re DifferentThe Handford Financial Strategies Advantage
Helping Maximize Your Fiduciary ProtectionPutting Our Investment Expertise to Work for YouDesigning a Plan to Help Maximize SatisfactionHelping Your Employees Make Better Decisions
Our FirmA Team Dedicated to YouSome of Our ClientsClient Experiences with Our Company
Our Broker/Dealer
Table of Contents
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How We Work with You
RegulatoryCompliance
Fiduciary Oversight
Participant Services
Plan Design
ADVISOR Investment Expertise
Seamless IntegrationWe are dedicated to:
Creating a reliable, seamless experience and improved outcomes for retirement plan sponsors and employees
Implementing process-driven strategies to help you limit your fiduciary liability
Acting as your guide to help you manage changes in the regulatory environment
Offering advice and education to improve the retirement readiness of your employees
Helping you manage your relationships with third parties
Vendor Management
EMPLOYER
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Independence: What Ours Means for YouOur objectives are aligned with your best interests and those of your employees.
• 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 YouWe’re committed to standards of investment fiduciary excellence.
• 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
How We’re Different
The Handford Financial Strategies Advantage
Maximize Your Fiduciary ProtectionWe acknowledge a written fiduciary status. Enhance Investment OpportunitiesWe recommend an investment lineup that aligns with plan objectives.
Manage Plan CostsWe evaluate and monitor provider fees and services for reasonableness.
Optimize Plan Efficiency and Ensure ComplianceWe focus on operational aspects, including plan eligibility,
contribution modeling, and compliance.
Our primary goal is to help you manage risks, ensure that your plan delivers optimum investment options and services, and improve employee retirement readiness.
Improved Retirement ReadinessWe create a customized employee education program and offer individualized investment advice.
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Helping Maximize Your Fiduciary Protection
• 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
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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We follow a proven, documented process to review investment offerings aimed at enhancing investment outcomes.
Putting Our Investment Expertise to Work for You
BenchmarkInvestment Policy
Statement
Investment Analysis
and Selection
Ongoing Assessment and
Review
Establish guidelines for making investment decisions.
Evaluate the investment portfolio and recommend a balanced lineup that offers broad diversification across asset classes.
Compare the plan to industry averages to identify areas for enhancement.
Conduct periodic investment reviews to ensure that performance and expenses remain consistent with plan objectives and in accordance with the IPS; deliver written report.
Diversification does not assure against market loss, and there is no guarantee that a diversified portfolio will outperform a nondiversified portfolio.
Designing a Plan to Help Maximize 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:• Gathering responses, data, and pricing from several plan providers• Analyzing costs, services, and investment choices• Facilitating finalist meetings
We focus on designing a plan that can streamline your administrative responsibilities, maximize plan provisions, and promote employee satisfaction.
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Helping Your Employees Make Better Decisions
• 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.
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.
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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.
Our Firm
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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 HandfordJennifer 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.
A Team Dedicated to You
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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.
Our Broker/Dealer