Advisor Gregory Kasten, a former anesthesiologist, has built a rare fiduciary practice in the 401(k) market.
The most remarkable thing about Gregory Kasten isn't the fact that he is a board certified anesthesiologist. It's that he retired from his lucrative practice of 13 years at the ripe old age of 40 because he believed he could help more people as an investment advisor. Arguably, he does just that by providing tens of thousands of employees with optimized, low-cost portfolios that his firm carefully builds and rebalances.

Read that quickly and it might not register. But the point is a crucial one. Kasten's firm-Unified Trust Company (UTC)-is rare-it's one of the few that offers plan participants active discretionary advice, including automatic enrollment in a diversified portfolio. If that doesn't set the company apart in these days of corporate liability nothing does.

"There's no question that Unified Trust is unique," says Donald Trone, president of the Foundation for Fiduciary Studies in Pittsburgh. "A few years ago, I would have thought they were courting liability."

Today, in the post-Enron environment, it's a different world. "I think that the overwhelming evidence is that the typical 401(k) plan is not operating in the best interest of participants-that we've put too much faith in the ability of participants to make the right decisions," says Trone, who was appointed by the U.S. Secretary of Labor to the ERISA Advisory Council in 2003. "Knowing that, every day we don't take affirmative action to correct the problem places us at more liability as an industry."

While fund complexes, broker-dealers, banks and insurers trip all over themselves trying to sidestep fiduciary liability, Kasten embraced it a decade ago by converting his advisory firm to a trust company. Its  status as a trust company means he can sidestep broker-dealers and go directly to fund companies for offerings.

Equally important to the firm (with more than $800 million in assets under management or advisement), UTC's fee disclosures go directly to clients. And the company has developed proprietary software to track all fees paid by mutual funds and automatically apply them to offset client bills-something that the U.S. Department of Labor isn't requiring of plan providers until 2006. With hidden fees at the heart of numerous DOL and Securities and Exchange Commission investigations, the bright light that Unified Trust shines on fees and conflicts of interest is heartening.

A superachiever even by advisor standards (Kasten was a pharmacist before he became an anesthesiologist, then an advisor and president and CEO of his own trust company), Kasten says his greatest motivation isn't offering investment services but helping people actually retire. He believes the portfolios his firm builds do that for investors-both for the plan participants and the individual investors who work with his firm, many of them doctors and nurses who started investing with Kasten during the six years he wore both a doctor's and advisor's cap.

The hands-off model most plan sponsors use is broken and most advisors know it, Kasten maintains. "You're telling investors, 'You're going to be your own actuary, your own asset allocation specialist, your own fund diagnostic expert,'" Kasten says. "IBM couldn't do that on their own, but somehow we think you, the participant, can do it. And then you'll implement your portfolio, right? The whole notion that we could take this complex system and have investors figure it out based on a brochure is incredibly simplistic."
So not surprisingly, Kasten's firm doesn't just throw mutual fund choices at plan participants and tell them: "Okay, now you choose." In fact, the optimization software that Kasten has developed-it's called the Unified Fiduciary Monitoring Index-chooses funds in the top 25% of their peer groups that has produced average annual returns 3.2% higher than the Standard & Poor's 500 Index over the past three years.

In addition, instead of letting employees get waylaid by their own inertia, Kasten has developed an investment program that puts it to work for them. They're automatically invested in low-cost, risk-adjusted model portfolios that are actively managed and rebalanced. That is, unless a participant takes the time to opt out. So unless an employee says: "No, I don't want that portfolio or that fund," they get one of the appropriate six model portfolios Unified Trust has developed.

Active fiduciary duty, model portfolios and the "opt out" method of helping to ensure that plan participants actually invest are just some of the features attracting advisors like Beachwood, Ohio-based advisor Dennis Tidmore to UTC's door. He was referred by local money managers who just didn't manage 401(k) plans. "I went and visited and had some early 'ah-ha' moments," says Tidmore, who signed on with UTC in 2000 and now services 12 retirement plans with assets of more than $50 million. "First, every institutional fund in the universe was available (which was not the case with the brokerages he talked to). At the heart of the process, not only has Unified Trust created a monitoring index to rank and replace funds, but it is designed to optimize performance and minimize risk and fees." He says clients also like the fact Unified Trust provides a guarantee that they'll only use funds that are within the ranks of the top 25% of performers.

"Kasten is a visionary and this is the right way to do business," maintains Tidmore, who credits Unified Trust with the fact that he is about to land the retirement plan business of more than 100 business members of a national association. "This is truly a turnkey service for advisors."