Delegating & Monitoring a 3(38) Manager
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Fiduciaries must engage in a thorough screening and due diligence process when selecting a 3(38) manager. This includes identifying qualified candidates, documenting the process, and obtaining and verifying information about the manager's assets, experience, fees, references, financials, compliance procedures, and affiliates. Once selected, fiduciaries must prudently monitor the manager on a quarterly and annual basis by reviewing investments, returns, fees, trading practices, and for any changes to policies, performance, staff, or processes.
Delegating & Monitoring a 3(38) Manager
- 1. Steps Required to Prudently Delegate to a 3(38) Manager 1 The fiduciaries must engage in a preliminary screening process to identify a range of qualified candidates; The fiduciaries must document the process; Fiduciaries must obtain and review the following: Assets under management Historical results Experience with plans similar to proposed plan Proposed fee structure Client references Capitalization and financial condition Bonding Fiduciary liability insurance Written description of proposed investment style Qualifications and experience of the professionals involved Any pertinent regulatory action or litigation; regulatory agencies such as SEC, DOL, and NASD must be contacted to screen for any such action Business structure and affiliations Full disclosure of how affiliates will be involved in servicing the client and any compensation received by affiliates in connection with the client relationship Procedures for compliance with prohibited transaction rules Fiduciaries must verify through independent sources any information provided by vendors.
- 2. Steps Required to Prudently Monitor a 3(38) Manager 2 Quarterly review: Compliance with investment guidelines Compare investment manager reports to custodian reports to identify any discrepancies Ensure all assets have been properly valued Compare portfolio returns versus benchmark; break down by asset class and sector Verify each manager’s fee computation Annual review (including an annual face‐to‐face meeting): Review brokerage and trading practices, including brokerage costs, soft dollars, turnover, and best execution Proxy voting policy and performance Procedures for communicating investment information Investment performance Changes in corporate or capital structure Changes in investment style Changes in brokerage affiliation or practices Changes in investment process Changes in professional staff