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What is the average price for an ERISA 3 (38) investment manager?

Jul 12, 2016 by Dan in  |  Flag
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It depends on the size of the assets under the plan. The 3(38) fiduciaries We use in my planning firm usually start at 0.30% on assets annually and the cost goes down as assets increase. On $100 that would be an annual fee of 30 cents

Comment   |  Flag   |  Jul 12, 2016 from Malvern, PA

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In addition to plan size you need to make sure you understand what level of service the 3(38) is offering. 3(38) is simple a code section under ERISA which allows the plan sponsor to offload the responsibly and potential liability under for investment selection to a third party; a bank, insurance company or registered investment advisor (RIA) who performs service meeting the definition of 3(21)(A)i. Rarely will you see a bank or insurance company hold themselves out as a 3(38) because typically they are trying to sell their own investment products to the plan. This causes a conflict which in turn precludes them from acting under 3(21). So you will typically only find RIA functioning as the 3(38).

An RIA who agrees to become a 3(38) to your plan is agreeing to be a fiduciary to your plan and specially is agreeing to accept delegation in writing for the selection and monitoring of the investments in the fund line up.

But to what level will they provide this service. The lowest cost 3(38) is simply vetting a list of possible investment options offered by a 401k recordkeeper. They don’t select the actual fund line up for the plan. They don’t prepare an Investment Policy Statement (IPS) and they don’t meet with the plan sponsor to help ensure that the sponsor is adhering to any responsibilities outlined in the IPS.

At the other end of the spectrum is the 3(38) advisor who will select all investments in the lineup, and design model portfolios for the participants which they will monitor and rebalance. They will become the “Fiduciary Investment Manager” for the plan. Ideally they will not be limited by any proprietary fund line up and will instead be allowed to select from the entire universe of available funds including exchange traded funds.

To complicate matters a Fiduciary Investment Manager will typically offer services which are non-fiduciary in nature such as fiduciary governance training, one on one participant guidance, broad participant education, plan design, plan benchmarking, etc.

Advisors who offer the highest level of service typically charge 1% for small plans and then work down to 0.35%. Difficult to tell how much of the level of service is directly related to 3(38).

Remember that ERISA doesn’t require a plan sponsor to use the lowest cost service provider but simply to document that they are receiving sufficient value for the cost.

Hope this helps.

1 Comment   |  Flag   |  Jul 12, 2016 from Woodbridge, VA

Thanks everyone this has been very helpful.

Flag |  Jul 12, 2016

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This is a great question that more and more sponsors are raising. As David mentioned, a lot of this depends on size. As a part of Retirement Partners at LPL, we have a small market (under 10mm) solution for 10bps assuming certain criteria are met. We also work with several other 3(38) fiduciaries that can be in the 15-30bps range.

What is the size of your plan and what is it that you're looking to achieve?

Comment   |  Flag   |  Jul 12, 2016 from Manhattan, NY

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As David and Jared have mentioned it depends on the size of the assets in the plan. We serve as a 3(38) as well as the Investment advisor to the plan. We consult with the other fiduciaries to the plan (402 and 3(16)) as well as handle all of the education, enrollment, and semi-annual review meetings and we start at 0.50% and it goes down from there as the plan is larger. So, it depends on the size of the plan and the services that are offered which determine what should be reasonably charged to a plan.

Comment   |  Flag   |  Jul 12, 2016 from Salt Lake City, UT

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Randy Brunson Level 18

Hi Dan, 3(38) costs are a function of plan costs, and whether you are interested in plan level or participant level 3(38) services. You can buy plan level 3(38) services, for plans with $5 million or more in assets, for no more than 10 bps, or 0.10%, annually. Pricing for participant level services are a function of total plan assets, and average participant balance, among other things.

Comment   |  Flag   |  Aug 04, 2016 from Suwanee, GA

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