“What is your decision-making process, or do you even have one?” asked Patricia Tiralongo, vice-president with TD Asset Management Inc. at a recent pension fundamentals seminar hosted by the Toronto chapter of the International Society of Certified Employee Benefit Specialists.
Tiralongo stressed to the plan sponsors in the room that having a process to select a plan administrator and asset manager are vital for anyone with a pension plan—whether they have a defined benefit or a defined contribution plan.
Choosing the right administrator and asset manager for their organization will help ensure plan sponsors are meeting their fiduciary responsibilities and will save them time, money and headaches in the long run. Tiralongo offers some suggestions to help make the process easier.
Administrator selection
Before hiring a plan administrator (for organizations where appropriate), plan sponsors need to establish what means the most to their plan participants. For example, if in-person education and seminars are what the members need, then hiring a local administrator is likely the best, and most cost-effective, route to take. “If you have a company with a young demographic, you need an administrator with sophisticated online tools for reporting and education,” Tiralongo adds.
Once an administrator is hired, she suggests reviewing them on a three- to four-year basis. Is the administrator still meeting the organization’s needs? Do they still fit in the budget? If not, maybe it’s time to head to market.
Asset manager selection
Plan sponsors can enlist their administrator (if they have one) to help with narrowing down the right investment manager. Administrators often have investment managers on their platform and can review them for the plan sponsors (or provide a review) for plan sponsors.
But whether it’s the plan sponsor or the administrator reviewing the manager, the organization’s history and structure needs to be taken into consideration before making a decision. Tiralongo thinks this is just as important as the potential manager’s investment style, philosophy and past performance.
“Ownership structure is ownership structure, and it’s still an important consideration in the end. If you have an asset manager where the dealer is struggling and it makes up a large portion of the business, there is a chance that you will be with an entity that is struggling,” she says. “If 2008 taught us anything, we need to review not only managers but also their entities.”
Other questions to consider include: Are they a passive or active manager? What is the fee structure? What will the fund lineup look like? Has the investment manager had any violations with pension or securities commissions? “That can definitely be a red flag,” Tiralongo notes.
Once a manager is hired, again, its performance and strategies need to be reviewed regularly to ensure that it is still meeting the plan sponsor’s needs, following the investment policy statement and of course, adding value to the fund. The frequency at which the manager is reviewed, however, depends on its style, performance and how happy the plan sponsor is with its service in general.
To comment on this story, contact us.