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HR Magazine, September 2003 - Fidicuiary Fitness - Additional Material

By Carolyn Hirschman  9/1/2003
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HR Magazine, September 2003Vol. 48, No. 9

Questions for Potential Providers

Following are excerpts from a report by the Working Group on Guidance in Selecting and Monitoring Service Providers, submitted Nov. 13, 1996, to the Employee Retirement Income Security Act (ERISA) Advisory Council. In addition to the questions presented here, the report contains questions for hiring investment consultants and for hiring providers of bundled services. The full report can be read at

For All Service Providers

  • What service or expertise does the plan need? Is the service or expertise necessary and/or appropriate for the functioning of the plan?

  • Does this service provider have the objective qualifications to provide the service properly? Generally, the fiduciary should seek the following information: the candidate's business structure, size of staff, individual to handle the plan's account, relevant experience, performance record, technical capabilities, etc.

  • Are the service provider's fees reasonable when compared with industry standards in view of the services to be performed, the provider's qualifications and the provider's scope of responsibility?

  • Does the plan have a conflict-of-interest policy that governs business and personal relationships between fiduciaries and service providers and among service providers? Does the plan require disclosure of such relationships?

Investment Managers


  • Is the hiring of this manager consistent with the investment policy statement?

  • Is the investment manager a qualified professional asset manager?

  • How does the investment manager manage money? What is the manager's performance record, and how does the manager achieve this performance? What are the risks of the manager's style and strategy compared with other styles and strategies? Is this risk level acceptable in view of the return?

  • How does the investment manager measure and report performance? Is it objective?

  • Has the investment manager been terminated by plan clients, and, if so, why?

  • Has the ownership of the investment manager changed, and, if so, how will this affect the ability of the manager to perform needed services?

  • What are the investment manager's fees? Are they reasonable compared with industry standards for the type and size of the investment portfolio? Does the fee structure encourage undue risk taking?

  • Does the investment manager have insurance that would permit recovery by the plan in the event of the manager's breach of fiduciary duty?

Provider Monitors

  • Who is responsible for monitoring the service

  • provider? What is the process to monitor the provider?

  • Does the service provider produce written reports? How often?

  • Do the written reports provide sufficient information to evaluate the performance of the service provider adequately compared with benchmarks or industry standards?

  • Is there a process in place to: a) correct any noncomformance with guidelines/contract, benchmarks or industry standards or b) terminate the service provider and retain a successor?
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