Fiduciaries who fear fiduciary liability are mistakenly equatinglow-cost products with low risk.

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That’s according to a Cerulli report.

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It says fiduciaries’ two top concerns for plan sponsors when they’re makingdecisions about defined contribution plans are cost concerns andfiduciary liability—particularly fear of lawsuits.

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Specifically, the report said, sponsors aren’t clear about aplan fiduciary’s responsibilities when it comes to fees, and thatmakes them nervous.

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Presenters from the Employee Benefits Security Administrationwent into that very issue during a 2015 webcast series, spellingout a fiduciary’s responsibilities relative to plan costs,including their duty to make sure fees and expenses paid by theplan are commensurate with the level and quality of services beingprovided.

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Read: 7 things fiduciaries shouldn't say incourt

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In other words, both cost and quality are important.

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However, fiduciaries often consider costs in isolation, thestudy said, and that leads to problems.

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They pay more attention to cost or to the potential forlitigation, their other major fear, than they do to investmentmerit when making decisions for a plan.

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Class action suits over excessive fees that have drawn major headlineshave helped to push them in this direction.

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So lower costs look more attractive, particularly since sponsorsare already worried about fiduciary liability. “There is anunfortunate misconception among plan sponsors,” the report said,“that low cost equals low risk from a fiduciary perspective. Assuch, the industry’s focus on reducing fees supports continuedflows into low-cost, passive products. Asset managers feel thispressure, with 50 percent identifying increased demand for passivefunds as a major challenge to winning DC assets.”

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The report added, “Advisors and consultants must remind plansponsors that choosing the lowest cost option, which is mostcommonly passive, is not synonymous with carrying out theirfiduciary responsibility.” Cerulli also pointed out that collectiveinvestment trusts (CITs) carry lower costs for those plans largeenough by plan assets to qualify for them. While some criticizeCITs because they are less stringently regulated, “Cerulli believesthat lower compliance, marketing, and operating costs combine tomake CITs attractive in the current fee-sensitive environment.”

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