PLANSPONSOR - April/May 2019 - 18

Upfront
Monitoring the 3(38)
Investment Manager
IT RARELY happens that a plan sponsor
decides to take the 3(38) investment
outsourcing route and misunderstands
what it is signing up for in terms of
handing over fund menu discretion, says
Elliot Raff, chief compliance officer and
consultant at Curcio Webb. " However,
there are occasionally some misunderstandings
about the nitty-gritty details,
which can be unsettling for plan sponsors, "
says Raff, whose firm acts as a
matchmaker between fiduciary investment
advisers and sponsors.
Scott Matheson, managing director,
defined contribution (DC) practice leader
at CAPTRUST, says sponsor demand
for 3(38) services continues to grow at a
strong pace. Nearly all of the requests for
proposals (RFPs) his firm filled out last
year asked about 3(38) capabilities, he
says. Many asked for 3(38) pricing, even
if the intent of the sponsor was to hire a
3(21) adviser.
" When they engage us as a 3(38) investment
manager, clients often ask how they
should monitor us, " Matheson says. " We
have a unique perspective in answering
this question because, in the course of
business, we evaluate and monitor the
investment managers whose products are
in our clients' investment lineups. In fact,
we have a dedicated team doing this every
day, and the rigor we apply to that process
is the same we suggest you use to monitor
a plan-level investment manager. "
Matheson shares a list of questions
plan sponsors should ask when evaluating
the services of their investment manager:
* Has it acknowledged in writing that
it acts as the plan's fiduciary?
* Does it adhere to the plan's investment
policy statement (IPS)?
* Does it select plan investment
options consistent with the IPS?
18 PLANSPONSOR.com April - May 2019
* Does it monitor-and replace, if
necessary-investment options for their
consistency with the IPS?
* Does it report performance in the
context of each strategy's objective, appropriate
benchmarks and peer groups?
* Does it provide adequate rationale
and documentation for investment
changes made?
* Does it work with your provider to
execute fund changes on your behalf?
Matheson also suggests that plan
sponsors periodically-perhaps annually-ask
their 3(38) manager questions
about his organization, to ensure the firm
has not changed in a significant way that
could affect its ability to fulfill its duties.
When conducting these annual
reviews of the firm, Matheson says, the
following questions are relevant:
* Have there been any changes to the
management or ownership?
* Have there been organizational
changes that affect plan management?
* Has there been a change to the
Art by Amy Matsushita-Beal
firm's status under the Investment
Advisers Act of 1940 ('40 Act)?
* Has the firm been investigated by
any regulatory or government agency?
* Has it been routinely examined by
regulators or independent auditors?
* Has it been the subject of any litigation-settled,
pending or threatened?
* Have there been any material
changes to its fidelity bond or errors and
omissions (E&O) insurance?
* Have there been any changes to its
written fiduciary status related to the plan?
* Have there been changes to its roles
and responsibilities related to the plan?
* Has it disclosed all sources of
compensation?
* Does it have any conflicts of
interest with any of the plan's investment
managers or other providers?
* What are the investment manager's
3(38) assets under advisement (AUA)?
* What is the total number of plans
for which the investment manager acts as
3(38)? -John Manganaro
http://www.plansponsordigital.com/plansponsor/april-may_2019/TrackLink.action?pageName=18&exitLink=http%3A%2F%2FPLANSPONSOR.com
PLANSPONSOR - April/May 2019

Table of Contents for the Digital Edition of PLANSPONSOR - April/May 2019
