Qualified Professional Asset Manager (QPAM) What Is a Qualified Professional Asset Manager (QPAM)? A qualified professional asset manager (QPAM) is a registered investment advisor (RIA) that assists various institutions in making financial investments. The focus of a QPAM is on retirement accounts, such as pension plans. QPAMs are beneficial to investment funds because if an investment fund or retirement plan is managed by a QPAM, they can then transact in areas otherwise prohibited by the Employee Retirement Income Security Act (ERISA)
- A qualified professional asset manager (QPAM) is a registered investment advisor that assists institutions in making investments.
- The focus for a QPAM is on retirement accounts, such as pension plans.
- When employing a QPAM, investment funds can do business in areas otherwise prevented by ERISA. This is known as a QPAM exemption.
- Banks and insurance companies may qualify as QPAMs as long as they are registered investment advisers with the Securities and Exchange Commission (SEC).
- A QPAM is also defined as a registered investment adviser with AUM of at least $85 million and shareholder's equity of $1 million or more.
Understanding a Qualified Professional Asset Manager The criteria for qualifying as a QPAM are defined by ERISA. Regulated institutions, such as banks and insurance companies may qualify as a QPAM. Under amendments that came into effect in August 2005, a QPAM is also defined as a registered investment adviser with client assets under management
(AUM) of at least $85 million and shareholder's equity
of $1 million or more.1
Investment funds can typically benefit on a regulatory basis through the QPAM exemption. The QPAM exemption
is widely used by parties who conduct transactions with accounts holding retirement plan
funds. Essentially, the QPAM exemption allows an investment fund that is managed by a QPAM to engage in a wide range of transactions that would otherwise be prohibited by ERISA.
ERISA prohibits certain transactions when an ERISA governed plan or fund transacts business with an entity that may be conflicted in regards to that plan or fund. When a QPAM is in the equation, the restriction is lifted with practically all parties, such as plan sponsors
and plan fiduciaries
. However, such transactions cannot be entered into with the QPAM itself or with those parties that may have the power to influence the QPAM.
One big role for QPAMs is representing pension plans when they want to engage in private placements
. The QPAMs role is to vet the private placement for the pension fund. Qualified professional asset managers may also assist investment plans with investing in real estate or other alternative investments
Qualified Professional Asset Managers and Prohibited Transactions A qualified professional asset manager may make a transaction that would normally be prohibited under ERISA section 406(a).2
Such transactions may include sales, exchanges, leases, loans/extensions of credit, and the provision of services between a party of interest and a pension plan
. Using a QPAM can remove the risk of trustees being held personally liable for errors as long as they utilize the QPAM prudently. However, using a QPAM is not a shield for breach of fiduciary duty.
Qualified Professional Asset Manager Qualifications The qualifications for a qualified professional asset manager are codified in Prohibited Transaction Class Exemption 84-14 issued by the Department of Labor
. They are:3
- The QPAM must be a bank, a savings and loan association, or an insurance company with equity capital or net worth in excess of $1 million or a registered investment adviser with assets under management in excess of $85 million and equity in excess of $1 million.
- The counterparty must not be the QPAM or related to the QPAM or to the fiduciary appointed by the QPAM. A related entity is one where the QPAM owns 10% or more of the other entity, or an individual that controls or is controlled by the QPAM owns 20% or more of the other entity, or the person controlling or controlled by the party in interest owns 20% or more of the QPAM.
- The asset manager must represent in writing to the client that it is acting as a fiduciary.
- The QPAM must negotiate the terms of the transaction and decide on behalf of the plan whether to engage in the transaction.
- The QPAM may not have been convicted of certain activities that could bear down on financial trust.
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