ESG isn’t going away. There’s no way of telling if it’s a mood ring or a diamond ring. One thing is eminently clear: ESG is a product that people want right now. This complicates life for the retirement plan fiduciary.
Due Diligence
The most pertinent issue may not be the fiduciary imperative, but the marketing imperative. This makes things extremely difficult for the 401k plan sponsor who may sometimes confuse which has priority. Here’s an example of why a plan sponsor might be concerned.
Despite the better intentions of finance professors a generation ago, the market regularly fails the efficiency test. The scary reality is not a question of what degree of market inefficiency exists, it’s that market inefficiency exists at all. And that can harm investors.
The proliferation of investment options promised participants a plug-and-play plan. In the process, it created a 401k Frankenstein monster of a mess.
Plan sponsors – or, more specifically, the companies plan participants work for – may be placing employees in a far greater cyber-vulnerable position than they realize.
401k plan sponsors can’t afford to fall victim to the lure of heuristics. Index funds can generate just as much fiduciary headaches as actively managed funds.
The prevailing consensus has been corporate executives work for their owners (i.e., shareholders). That all changed on August 19, 2019. What are the fiduciary implications?
If you think this evolution is amazing, just wait until you see what changes come about once the 401kMEP starts ramping up.
Once 401k plan sponsors become aware of the differences between the types of service offerings, the ideal strategy is then to explicit solicit proposals for each type of offering to determine which kind of offering best serves their unique situation.
But is that a chance a fiduciary should take with someone else’s money? The answer is so obvious the question should not have to be asked.
