As this consolidation has occurred on the advisor side, Advisor firms are actively positioning OCIO (Outsourced Chief Investment Officers), ERISA 3(38) or Discretionary Asset Management services to Plan Sponsors. The three terms are used interchangeable and relate to hiring an advisor/consultant to take fiduciary responsibility from the Retirement Committee for all investment related decisions including hiring and firing investment managers/funds in your retirement plan.

Generally, Committees are utilizing this service due to:

  • The desire for additional expertise in implementing institutional-quality structures,
  • The perceived mitigation of fiduciary risk or
  • An insufficient investment sophistication level on the Committee.

Plan Sponsors considering the implementation of this type of OCIO/ERISA 3(38) model should be prepared to conduct extensive due diligence on potential partners since there are significant differences in service models.
A small sample of questions that need to be addressed in detail include:
  • Please explain the differences in the operation of the ERISA3(21) consulting versus your ERISA 3(38) consulting models.
  • How is your team structured and who is responsible for making asset class decisions? Does the same team/individual make individual manager decisions?
  • What due diligence do you provide us on the decisions you make for the Plan?
  • How are fees structured and can we expect an increase by using the OCIO/ERISA 3(38)/Discretionary model?
  • Do you utilize proprietary investment products or utilize an open architecture model?
  • What oversight responsibilities do I have as a Plan Sponsor?

It is impossible for Plan Sponsors to eliminate all fiduciary liability and need to be prepared to undertake periodic due diligence of these services.

Determining whether the implementation of this type of service model will benefit the plan and participants is a big decision. Committees have chosen to hire an independent expert like Comperio on a one-time project basis to assist them in their OCIO/ ERISA 3(38) evaluation process.