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ACES 2.0: Advisor Commitment to 401(k) Education and Service®

Understanding Fiduciary Options – Sample Prospecting Letter

Dear [Plan Sponsor Contact]:

What kind of fiduciary outsourcing are you practicing in your 401(k) plan? Is it what you have actually chosen? Do you have a 3(38) Investment Manager, a 3(21) fiduciary, a non-fiduciary advisor or consultant or are you on the hook for all of it?

Remember whatever you have not specifically outsourced still falls on your shoulders, meaning you are required to operate as a prudent expert would. And you may even have personal liability for those decisions.

Consider the following:

Disclosure — In the 408(b)(2) Disclosure, the financial professional needs to disclose if they are a fiduciary. But what if they are not? They do not have to tell you that. Do you know who all the fiduciaries are? How and where are they identified?

Options — What are the pros and cons of having a 3(38), or 3(21) or working only with a non-fiduciary advisor or consultant? How risky is it to try to maintain all the fiduciary duties within your company?

[Personalize example for your type of contact]

Business Owner/CEO type:

Monitoring — You are trying to run your business; not become a 401(k) expert. Even if you have established a fiduciary committee or hired independent fiduciaries, as the [business owner or CEO], you still must periodically evaluate all fiduciaries to make sure they are meeting their requirements. You still have to spend your time and money on this monitoring, as well as making sure you have the knowledge needed to evaluate ALL those you have hired. So, when you are personally liable under the fiduciary rules, how can you be sure you are protected?

Treasurer/CFO type:

Cost vs. Benefit — Outsourcing fiduciary duties to another entity means plan fees increase. Depending upon the type of outsourcing you do, this fee may be substantial. Obviously, given the complexity of the fiduciary rules this cost may well be worth it. But you need to evaluate how much risk transfer you are really buying? For example, is the fiduciary you have outsourced to a smaller company than yours? In case of a problem, their size may not provide much protection.

Do they have the proper bonding and insurance?

Human Resources type:

Responsibilities — You have plenty to do trying to help participants save enough and the plan improve participant experience. You know what you need to do, but given the complexity of a 401(k) plan, it can be difficult to keep track of what everyone else should be doing. Are all the roles and duties clearly defined with all plan fiduciaries?

For example, was there confusion when the new 408(b)(2) and 405a-5 disclosure rules came out? Having fiduciary roles defined is ever more critical, as it impacts your personal liability.

My service includes making sure you know what you are getting, as well as the pros and cons of other approaches. If you like to be well-informed and have a certain degree of certainty, then let me help you:

• Outline your fiduciary options.

• Determine what is best for you and your plan.

• Ensure that you are getting what you pay for from your plan fiduciaries and other service providers.

Optional: Enclosed is a copy of some additional information on fiduciary duties for your review.

[We suggest including our Fiduciary Obligations of Retirement Plan Sponsors whitepaper. For more information, go to en-us/advisor-resources/main/business-building/branding-marketing/aces.html].

Although this letter if focused on fiduciary duties, I use many special tools and resources that may improve your plan operations, enhance participant experience and optimize efficiency.

I will contact you in the near future to discuss this and schedule a meeting. If you have any questions or would like more information, please call me at [telephone number] or email me at [email address]. I look forward to speaking with you.

Sincerely,

[Signature]

[Financial Advisor/Professional]

[Contact Information]

[Firm Information]

For Financial Professional use with plan sponsors.

The information in this communication does not constitute, and should not be relied upon as, legal advice. Franklin Resources, Inc., its affiliates, and its employees are not in the business of providing legal advice with respect to ERISA or any other applicable law.

Any type of communication that you plan on using with plan sponsors and fiduciaries must be reviewed and approved by your firm’s compliance and legal departments prior to any use to confirm that they meet your firm’s legal and compliance policies and standards. You and your firm are solely responsible for the use and distribution of this communication for ensuring that all services provided by you conform to your firm’s legal and compliance policies and standards.

All investments involve risks, including the loss of principal.

Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.

© 2020 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC is a wholly-owned subsidiary of Franklin Resources, Inc. 9/20

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