In last month's column, I made some suggestions to help those of you who would like to get into the 401(k) plan business (or who are already in it) as to how you can bring value to 401(k) plans when providing investment advice.

That column concluded with a quote from Jeff Chang of Chang Ruthenberg & Long, which is one of the nation's most respected ERISA law firms: "The single most important thing a 401(k) plan sponsor can do when retaining a plan provider who gives investment advice to the plan is to ensure that the provider formally assumes fiduciary liability for its investment advice. This should be possible as long as the provider qualifies as an 'investment manager' under ERISA."

Contrary to Chang's prudent advice, an overwhelming number of financial advisors that render investment advice to 401(k) plans do not embrace a fiduciary standard of care when giving that advice. Indeed, many of them do all they can to avoid such a standard. Those that fight against accepting a fiduciary standard of care for their investment advice to sponsors of 401(k) plans instead embrace what I'll dub, for purposes of this article, the "anti-fiduciary standard."

Those of you that desire to enter the 401(k) plan business and provide investment advice to plan sponsors have the choice of selecting from two business models. One model requires you to be a fiduciary and the other requires you to be an anti-fiduciary. I'll describe and explain the anti-fiduciary model first since it's by far the most prevalent today.

The anti-fiduciary business model is followed by certain "independent" consultants and consultants at certain Wall Street brokerage firms as well as others. These consultants market to sponsors of 401(k) plans and offer their services.

One such service is to conduct searches to find the "best" money managers for a sponsor's 401(k) plan. When the sponsor hires a consultant to advise it which money managers to hire or which investment options to select, it's natural to assume that the consultant will be objective in its advice. If you think that's true of these consultants, you would be wrong. 

In fact, the business model that such consultants follow is riddled with inherent conflicts of interest. One such conflict involves the pay-to-play scheme. Because consultants hold so much sway over 401(k) plan sponsors in advising them which investment options (and money managers) to select, those who would benefit from such selections--certain money managers--pay consultants money and other forms of compensation to play by being included on the consultants' lists of preferred plan investment providers. This pay-to-play scheme is illustrated by industry pension conferences that are sponsored by consultants and attended by money managers who pay very large fees to attend, while others do not pay.

Another conflict of interest inherent in the anti-fiduciary model is when certain consultants direct excessively costly brokerage trades to their affiliates, thereby collecting soft dollar fees. Soft dollar fees can cost a 401(k) plan in at least two ways: 1) high commissions and 2) possible violation of the "execution at best price" rule, which can amount to as much as 1% per year. Undisclosed soft dollar fees can add up to sums that are far larger than the disclosed fees consultants charge their 401(k) plan sponsor clients. In many cases, soft dollar revenues represent the bulk of a consulting firm's top line. That's why disclosed fees are often a kind of "loss leader" for certain consultants.

This business model has consequences that are dubious at best for plan sponsors. Imagine the power and the inequality of a poorly disclosed, misunderstood consultant-centric business model created by the same consultants who act as the all-powerful gatekeepers controlling access to it. In practical terms, this business model has created a cartel of high-powered consultants who face limited competition from outside the anointed circle. The car