Understanding The Role Of A 3(38) Investment Manager

what is a 3 38 investment manager

A 3(38) investment manager is a type of fiduciary that takes on the responsibility and liability of selecting, monitoring, and benchmarking investments on behalf of their clients. This role is defined by the Employee Retirement Income Security Act of 1974 (ERISA) and allows clients to outsource the burden of investment decision-making and risk to a qualified expert. 3(38) investment managers are legally required to act in their clients' best interests and are experts in choosing funds and managing assets. They are often sought after by employers looking to limit their liability for poor investment decisions and by individuals or organisations seeking comprehensive wealth planning and investment advice.

Characteristics Values
Definition An investment fiduciary on a retirement plan as defined by ERISA (Employee Retirement Income Security Act of 1974) section 3(38)
Responsibility Selecting, managing, monitoring, implementing, and benchmarking the investment offerings of the plan
Authority Has discretionary authority to direct the investment of the funds unless it is a participant-directed plan
Default The Employer typically acts as an Investment Manager by default, unless another party is explicitly named
Risk There is a level of risk associated with this role due to lawsuits associated with the responsibility for the costs and performance of a 401(K) plan
Outsourcing Outsourcing the role of an investment manager can reduce an employer's work and risk
Fiduciary A 3(38) fiduciary can only be a bank, an insurance company, or a registered investment adviser (RIA) subject to the Investment Advisers Act of 1940
Liability The 3(38) fiduciary assumes sole fiduciary liability and legal responsibility for investment selection and monitoring
Plan Sponsor Liability The plan sponsor cannot completely eliminate its fiduciary liability and is responsible for the prudent selection, monitoring, and benchmarking of the 3(38) investment manager
Duties Create and manage an Investment Policy Statement (IPS), select plan investment options, report on investments, benchmark the investments, replace funds and update model portfolios, hold investment committee meetings, and provide education to participants

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A 3(38) investment manager is an investment fiduciary on a retirement plan

A 3(38) investment manager is a fiduciary who takes on the discretion, authority, and control of a retirement plan's assets. This role is defined by the Employee Retirement Income Security Act of 1974 (ERISA).

A 3(38) investment manager is a qualified expert who is legally required to act in their clients' best interests when it comes to choosing funds and managing assets. They are responsible for selecting, monitoring, and benchmarking retirement plan investments on a discretionary basis. This means that once appointed, they become the sole decision-maker for investment selection and monitoring.

The benefit of hiring a 3(38) investment manager is that they assume sole fiduciary liability for investment selection and monitoring, offering the plan sponsor greater protection from claims related to poor investment decisions. The plan sponsor's liability is limited to selecting and monitoring the investment manager, ensuring they are qualified and meet their fiduciary obligations under ERISA.

A 3(38) fiduciary can only be a bank, an insurance company, or a registered investment advisor (RIA) subject to the Investment Advisers Act of 1940. It is important to note that the plan sponsor cannot completely eliminate their fiduciary liability, as they are still responsible for the prudent selection and monitoring of the 3(38) investment manager.

By delegating control of a retirement plan's investment lineup to a 3(38) investment manager, employers can minimize their liability for poor investment selection and monitoring decisions. This is especially relevant given the recent increase in litigation related to defined contribution plans. A 3(38) arrangement allows plan sponsors to save time, reduce risk, and achieve better outcomes for their employees' retirement plans.

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They are defined by the Employee Retirement Income Security Act of 1974

A 3(38) investment manager is defined by Section 3(38) of the Employee Retirement Income Security Act of 1974 (ERISA). This section allows plan sponsors to delegate the responsibility and liability of selecting, monitoring, and replacing a plan's investments to the 3(38) investment manager fiduciary.

The 3(38) investment manager is a fiduciary and, as such, assumes legal responsibility and liability for the investment decisions they make. They take on full discretion, authority, and control of the plan's assets, relieving the plan sponsor of these duties. However, it is important to note that the plan sponsor cannot completely eliminate their fiduciary liability. They are still responsible for the prudent selection, monitoring, and benchmarking of the 3(38) investment manager.

By hiring a 3(38) investment manager, plan sponsors can reduce their liability for poor investment decisions. The 3(38) investment manager's fiduciary responsibility includes making investment decisions that are in the best interests of the plan participants and beneficiaries. They must also ensure that the investments are diversified and that expenses are reasonable.

To effectively delegate duties to a 3(38) investment manager, plan sponsors must consider the manager's qualifications, background, experience, insurance, licensing, and potential conflicts of interest. The 3(38) investment manager must also acknowledge their fiduciary status in the contract with the plan.

Overall, hiring a 3(38) investment manager can provide plan sponsors with valuable protection from claims related to poor investment decisions while also outsourcing day-to-day employer duties and ensuring cost-effective, prudent, diversified, and competitive investments.

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The 3(38) manager selects, manages, monitors, implements and benchmarks investments

A 3(38) investment manager is a fiduciary who takes discretion, authority, and control of a plan's assets. They are legally required to act in their clients' best interests when it comes to choosing funds and managing assets. The 3(38) manager selects, manages, monitors, implements, and benchmarks investments by:

  • Choosing funds that align with the client's financial goals and risk tolerance. This involves analysing different investment options and making informed decisions about where to allocate the client's money.
  • Managing the selected investments by regularly reviewing and evaluating their performance. This includes monitoring how the investments are doing and making necessary adjustments to ensure they remain aligned with the client's goals.
  • Implementing the investment strategy by purchasing and selling assets on behalf of the client. This involves working with brokers or other financial professionals to execute trades and build a portfolio that matches the client's needs.
  • Benchmarking the investments against relevant market indices and similar investment portfolios. This helps to evaluate the performance of the selected investments and identify areas where improvements can be made.
  • Monitoring the investments over time and making necessary adjustments. This includes staying up-to-date with market trends and economic conditions, and rebalancing the portfolio as needed to maintain the desired level of risk and return.

By delegating these responsibilities to a 3(38) investment manager, clients can benefit from their expertise and focus their time and energy on other priorities. The manager acts as a trusted partner, providing ongoing guidance and ensuring that the investments remain aligned with the client's financial objectives. This level of service and customisation helps to create better outcomes and reduce the risk associated with investment decisions.

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The employer is the default investment manager unless another party is named

A 3(38) investment manager is a fiduciary who takes discretion, authority, and control of a plan's assets. They are defined by section 3(38) of the Employee Retirement Income Security Act of 1974 (ERISA). A 3(38) investment manager can be a bank, an insurance company, or a registered investment advisor (RIA) under the Investment Advisers Act of 1940.

However, it is important to note that the plan sponsor cannot completely eliminate their fiduciary liability by delegating these responsibilities. They are still responsible for the prudent selection, monitoring, and benchmarking of the 3(38) investment manager. The plan sponsor must select the investment manager prudently, taking into account their qualifications and other relevant factors.

By delegating investment responsibilities to a 3(38) investment manager, employers can benefit from the manager's expertise in choosing funds and managing assets. This can lead to improved investment outcomes and reduced risk for the employer. Additionally, 3(38) investment managers can expedite fund changes, resulting in compounding returns and better retirement results for employees.

In summary, while the employer is the default investment manager, delegating these responsibilities to a qualified 3(38) investment manager can provide significant benefits, including reduced liability, time savings, and improved investment outcomes.

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A 3(38) fiduciary can be a bank, insurance company or registered investment adviser

A 3(38) fiduciary is a type of investment manager that assumes sole fiduciary liability for investment selection and monitoring. They are qualified experts who are legally required to act in their clients' best interests when it comes to choosing funds and managing assets. A 3(38) fiduciary can be a bank, an insurance company, or a registered investment adviser (RIA) subject to the Investment Advisers Act of 1940. This is outlined in the Employee Retirement Income Security Act of 1974 (ERISA).

The role of a 3(38) fiduciary is to select, monitor, and benchmark retirement plan investments on a discretionary basis. They are responsible for making all investment decisions and assume legal responsibility and liability for those decisions. This means that they have actual discretion and control over the plan's assets and management.

By hiring a 3(38) fiduciary, plan sponsors can minimise their liability for poor investment selection and monitoring decisions. This is especially important as 401(k) litigation can result in personal liability for fiduciaries. However, it is important to note that the plan sponsor still has a responsibility to prudently select and monitor the 3(38) fiduciary and cannot completely eliminate their fiduciary liability.

The benefits of hiring a 3(38) fiduciary include time savings, risk transfer, and improved investment outcomes. It can also relieve plan sponsors of the worry and stress associated with making investment decisions. For smaller companies, it can be a way to reclaim time, while larger companies can benefit from unloading risks that are not core to their business.

Overall, a 3(38) fiduciary can provide valuable expertise and peace of mind to plan sponsors, helping to ensure that investments are managed in the best interests of the clients.

Frequently asked questions

A 3(38) Investment Manager is a fiduciary who takes discretion, authority, and control of a retirement plan's assets. They are defined by ERISA (Employee Retirement Income Security Act of 1974) section 3(38).

The 3(38) Investment Manager is responsible for selecting, managing, monitoring, implementing, and benchmarking the investment offerings of the plan. They also have discretionary authority over the investment of the funds unless it is a participant-directed plan.

There is a level of risk associated with this role due to potential lawsuits related to the costs and performance of a 401(k) plan. These lawsuits can target the fund lineup selected by the 3(38) Investment Manager.

Hiring a 3(38) Investment Manager can help reduce an employer's workload and liability. The employer will no longer need to research, select, and maintain investments for the company's retirement plan.

A 3(38) Investment Manager assumes sole fiduciary liability for investment selection and monitoring, whereas a 3(21) Investment Advisor may share some liability with the plan sponsor. A 3(38) fiduciary can only be a bank, an insurance company, or a registered investment adviser.

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