Easy To Be Hard

A great line from the musical "Hair." For fiduciaries and plan administrators the words "easy" or "free," should sound loud warning bells. Over two years ago, we warned against pension and fiduciary plan consultants wearing multiple hats, and this year there came subsequent and similar warnings by the SEC and the Department of Labor about consultants and conflicts of interest. ( see articles posted at www.mclaughlin-online.com) Yet, despite the warnings, plan administrators and fiduciaries continue to fall prey to "consultants" who offer to make their job easy by offering "one stop shopping."

Now we are even seeing a few insurance carriers trying to sell coverage directly to plans. Don't fall into that trap! Would you buy Enron stock direct from Ken Lay? As a pension fund trustee or administrator are you comfortable reading a fiduciary insurance policy and understanding the coverage it affords and more importantly, exclusion language contained in multiple endorsements. I can assure you your Fund's lawyer is not and will say so. Lawyers are good at raising questions but cannot give you an interpretation of how a policy will respond. An insurance company will give the interpretation, "the policy speaks for itself." An experienced Independent Insurance Agent specializing in Fund coverages can help you walk through this minefield of "whereas and wherefors" and if he/she is wrong carries E&O coverage to back up their work. Next time a "consultant" offers to sell your plan insurance ask for a copy of their insurance errors and omissions policy and state insurance license. You may be in for a surprise.

Most insurance companies cannot sell fiduciary coverages directly to Plans without violating their agreements with their agents. Besides they have only one incentive and that is to get your business. They have no incentive to "canvass the marketplace" or "explain the coverages or exclusions."

Plan trustees take their fiduciary responsibilities very seriously as they should. Be careful, even when someone you trust offers to get you insurance for "free" or "commission free." A fundamental tenant of risk management is "don't risk a lot for a little." Obtaining insurance coverage for your plan or yourself without a licensed, insured, expert independent agent is violating that tenant.

Independent Insurance Agents add value and protection to Plans. Don't let someone try to convince you otherwise by giving you a "free toaster." If you do, you may end up "burnt toast."