Will the Advisor be an Investment Fiduciary?
Many advisors have a preexisting relationship with the plan sponsor and want to have an active role in selecting the investments that are made available to plan participants. In that case, the advisor is considered an “investment fiduciary,” which means that the advisor has the highest legal duty to select investment options that are appropriate for the plan, with reasonable costs, and an ongoing responsibility to monitor those investments and make changes.
Some advisors do not feel they have sufficient experience with retirement plans and would rather just act in a consulting capacity to the plan sponsor (for example, to help the plan sponsor understand how to use the Vestwell Platform or for general retirement plan questions). In that case, the advisor is not an investment (or any other) fiduciary to the plan and the plan sponsor will often appoint Vestwell Advisors to be the investment fiduciary. We provide plan sponsors with Appendix I to the Plan Services Agreement for plans where Vestwell Advisors is the investment fiduciary.
Investment Manager vs. Investment Advisor
Regardless of who is selecting the investments for the plan, there are two types of investment fiduciaries: an investment advisor (also known as “ERISA section 3(21) advisor”) or an investment manager (also known as “ERISA section 3(38) manager.”).
Investment Advisor: Selects the investments but must obtain the plan sponsor’s consent to implement them.
Investment Manager: Has the authority to select and implement the investment selections.
For Vestwell Advisors, if elected to be the investment fiduciary, it will only serve as the investment manager. If a third-party Advisor wants to be the investment advisor Vestwell can support this, however, the Advisor and not Vestwell is solely responsible for obtaining and keeping a record of the plan sponsor’s consent to implement the investment selections. Vestwell’s only responsibility in that respect is only to follow the advisor’s directions and make those investments available on the platform.
Division of Responsibilities
Employers and advisors need to understand the clear line between areas that Vestwell handles and areas where we consider the advisor and sponsor to have exclusive responsibility. To understand "who does what" please review our Division of responsibilities article.