Investment Governance Documents
For employer-plan sponsors that may be using a product platform that limits access to a single management company, the need to demonstrate fiduciary prudence is paramount. Thereto, when a fiduciary chooses a product that inherently limits the available investment alternatives, the need to demonstrate prudent plan governance becomes a defensive necessity.
Nevertheless, the selection of such products is not imprudent – so long as the decision can be backed-up by documentation that demonstrates fiduciary diligence. Therefore, the combination of an Investment Policy Statement (IPS) and Investment Selection & Review Procedures (ISRP) documents can provide a logical decision framework with regard to the plan’s designated investment options.
For instance, the ISRP would set forth a prudent process by which investment alternatives are initially screened and periodically evaluated. It would describe methods that are specific, measurable, applicable, results-oriented and time-based (i.e., SMART) – using both quantitative and qualitative metrics that protect fiduciaries from making decisions that could be viewed as being arbitrary or compulsive. The most common examples of such metrics are:
Quantitative analysis involves the evaluation of statistical data, such as:
- Historical trailing performance (v index)
- Market risk/return measures
- Expense ratios
- Peer comparisons
Qualitative analysis involves the evaluation of non-statistical information, such as:
- Manager tenure or changes
- Style deviation or drift
- Fund mergers or closures
- Third-party ratings
However, in order to demonstrate ongoing fiduciary diligence and prudence, these metrics would need to be tracked and reported; whereby they could enable the plan fiduciary to make fact-based decisions. So, this is exactly what Fi401k Advisor's Fiduciary Adviser engagements are designed to provide for Plan Sponsors.