By Mark Mensack
If you’re a steward of your organization’s endowment funds and are staying updated on a fiduciary rule that is expected to place more responsibility on brokers and advisors, be aware that non-retirement funds are not included in the updated guidelines. Therefore, it will remain your responsibility to monitor your organization’s funds and scrutinize associated fees.
If you are responsible for overseeing your organization’s endowment funds or other non-retirement investments, here’s what you should know about the Fiduciary Rule and what you should be asking your organization’s broker.
The Fiduciary Rule, which the US Department of Labor finalized in April 2016, partially went into effect on June 9, 2017 and broadens the definition of “investment advice fiduciary” under the Employee Retirement Income Security Act (ERISA). All financial professionals (especially brokers and insurance agents) who manage retirement accounts will be legally responsible for acting in their client’s best interest when providing investment advice. While the rule – currently slated to go into full effect on July 1, 2019 – will set stricter guidelines for the management of retirement accounts, endowment funds will not be affected by the rule. Additionally, your broker might not be specifically trained on the indirect expenses associated with the funds he or she manages.
As such, stewards of an organization’s endowment will need to continue holding their brokers accountable and asking the right questions to ensure the client’s best interests are carried out by a broker. To ensure that your organization’s broker is managing funds with your organization’s best interests in mind, keep an eye on the indirect expenses (load fees, transaction fees, etc.) incurred through your plan. They can be buried within the contract, prospectus, and disclosures.
A fiduciary best practice, as found under Practice 4.4 in the Global Fiduciary Standard of Excellence, directs that “periodic reviews are conducted to ensure that investment-related fees, compensation, and expenses are fair and reasonable for the services provided.”
To fulfill this fiduciary best practice it’s probably best to include an impartial third party to review contracts and prospectuses or ask a broker questions (and scrutinize their answers) on your behalf to ensure they are managing funds in your organization’s best interest.