Mesirow buys flexPATH's 3(38) retirement-plan business

Mesirow Financial Holdings said Thursday it has agreed to buy the retirement plan-level 3(38) business of flexPATH Strategies, a firm that supplies outsourced fiduciary work and custom portfolios to retirement plans.

The business will land in Mesirow Fiduciary Solutions, the platform that runs Mesirow's outsourced-fiduciary work. Its menu includes 3(38) custom portfolio construction, 3(21) and 3(38) investment lineups, ERISA fiduciary services, due diligence, reporting, and custom defaults for retirement plans, HSAs and IRAs. Mesirow puts platform support at nearly 10,000 financial advisers and assets under management and advisement at roughly $164 billion.

Michael Annin, who runs Mesirow Fiduciary Solutions, said in a statement the purchase pairs flexPATH's established custom portfolio business with the firm's institutional scale, technology infrastructure and fiduciary expertise. It extends Mesirow's reach in the discretionary custom portfolio market, he said, and backs its goal of helping advisers and plan sponsors reach better participant outcomes.

The flexPATH deal follows Mesirow's May acquisition of LeafHouse Financial Advisors from LeafHouse Financial Group. That purchase added the FlexFiduciary and InvestBuild lines, brought about $23 billion in assets under management and advisement, and put LeafHouse's advisory business inside Mesirow Fiduciary Solutions.

flexPATH has been heading the other way. Last November it sold its sub-advisory business assets to Great Gray Group, a deal tied to collective investment trusts for which Great Gray Trust Co. served as trustee and flexPATH supplied outsourced investment management. The Mesirow transaction takes the plan-level 3(38) line off its hands as well. The announcement does not describe what flexPATH keeps or plans next.

The stakes go beyond the asset totals. In a 3(38) arrangement, the provider holds fiduciary status for investment decisions, and the plan sponsor and its adviser depend on the provider's research, operations and compliance. Buying that role means inheriting obligations attached to real plans, which makes post-deal integration the part that matters. Mesirow has a recent reference point: it absorbed LeafHouse's advisory business after the May purchase.

The scale argument is straightforward. A firm carrying fiduciary liability needs the staff and systems to exercise discretion day to day; those are fixed costs, and a $164 billion platform has a better claim to covering them than most. But the announcement leaves the investment question open. flexPATH's custom portfolios grew out of its own methodology, and the value of the deal depends on how much of that approach survives inside a platform with its own lineup of fiduciary services. The advisers who placed plans with flexPATH will find out first.