Bait and Switch: The Co-Fiduciary Name Game

The word fiduciary has become an industry buzzword over the last several years. Fueled by a spat of fiduciary breach lawsuits, more and more plan consultants are beginning to market their services as co-fiduciary. This practice, while meant to provide the sponsors with a sense of comfort, is typically little more than a marketing name game that leaves sponsors with a false sense of security regarding their ongoing fiduciary responsibilities.

Unfortunately, the legal complexities of fiduciary relationships give consultants who are looking to limit their liability, ample ambiguity to hide behind. While it would be easy to slip into a long winded and complex explanation as to how, this article will focus on why this practice is so common, and how plan sponsors can avoid being misled.

In reality, co-fiduciary liability is much more limited than fiduciary liability, and provides the plan sponsor with significantly less protection. While engaging a co-fiduciary consultant can assist the sponsor in managing the fiduciary aspects of plan, it will not relieve the sponsor of the fiduciary liability associated. Consultants often manipulate the semantics of fiduciary and co-fiduciary in an effort to limit their own liability.

Many consultants simply cannot be fiduciaries due to their affiliation with certain providers. A broker who is paid commissions by a particular retirement plan platform, for example, would breach their fiduciary duties to the plan as a result of their conflict. The broker could not act only in the best interest of the plan, due to the financial incentive they receive from the platform.

Still, ERISA does allow plan sponsors to delegate their fiduciary liability for the investments in their plans. ERISA allows for this so that plan sponsors who are not investment experts themselves, can hire an expert to oversee the plan’s investments. Despite some brokers’ and consultants’ efforts to resist their fiduciary duties, many firms willingly accept them. In selecting a consultant, plan sponsors should adequately distinguish between the two. For as hard as many consultants work at masking their roles, determining whether they will be a true fiduciary or a co-fiduciary is actually quite simple.  

In order for a sponsor’s fiduciary liability to be fully delegated, the consultant must acknowledge their status as a fiduciary in writing. Therefore, the very first question a plan sponsor should ask a potential consultant is whether they will accept their status as a fiduciary writing. The answer should be either yes or no. If the consultant needs a full paragraph to answer your question, there is a good chance the real answer is no.

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