Despite the Department of Labor’s
While the Q&A was “appreciated” and “not terribly surprising,” it left a lot of “unanswered questions,” says Shelby George, SVP of advisor services at Rochester, N.Y.-based investment manager Manning & Napier.
“[Although] the DoL FAQ left a lot of unanswered questions, they are not all applicable to every firm," she adds. "What is universal, however, is concern surrounding the short timeline by which these necessary adjustments need to be made.”
The Q&A did provide a “great deal of clarification,” says Alex Assaley, principal and lead adviser for retirement plans at Bethesda, Md.-based AFS 401(k) Retirement Services. However, he, thinks that the "unanswered questions many practitioners will have is what does this mean for my specific business and a lot of that will do with how it is interpreted and facilitated by broker-dealers, insurance companies, ERISA attorneys, etc."
He added that now is the time for advisers and consultants who serve retirement plans to ensure they know how the services they provide will be structured once the rule goes into effect in April 2017.
Assaley’s firm is a 100% fee-based registered investment adviser and well-suited for the fiduciary regulation, he says, because they have been acting in a fiduciary capacity for many years, since the firm’s founding.
However, there are multiple business models in the market, including advisers who have a portion of their business that is fee-based fiduciary but still have commission-based or non-fiduciary client relationships. The first big thing for these advisers, Assaley says, is to look at the Labor Department’s FAQs and understand the details of the ruling and the explanation the Department is providing, particularly around the best interest contract exemption.
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Advisers who work with employers should revisit fiduciary best practices, George adds. “While fiduciary law — the regulation around what is required — hasn’t changed since ERISA was passed in 1974, the best practices have evolved between regulatory guidance, litigation and the market,” she explains.
“For retirement plan advisers, [now] is a very important opportunity to start — yet again — a conversation around fiduciary best practices and [to] clarify rules with clients and prospects,” she adds.
Assaley says that working with his clients is a key component of what’s next. “Over the course of the last several months and continuing [we will] work with our clients to help them understand what the fiduciary rule means to them and what impact it has on our relationship as an adviser to them,” which is very little, he explains.
He also explains to clients what impact the rule will have on the work they are doing as plan fiduciaries and plan committee members and what they should be aware of today and tomorrow and understanding as the rule goes into effect.
There is “a lot of education and discussion with our clients and their retirement committees and plan fiduciaries on this ruling,” he says. We discuss “the reason for it and the focus and spirit of the rule that DOL put out and some nuances they should be aware of.”
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Industry change
While Assaley says multiple people in the industry, including himself, believe the structure of the fiduciary rule is a good thing, it is going to “drastically change the industry and some things that are going to be changed are for the better, in terms of removing conflict of inflict and ensuring there is proper disclosure around relationships and conflicts of interests.”
“But, I do think there are a number of advisers and service providers and parties within the marketplace that it is going to alter, if not disrupt, their business model,” he adds. “While I don’t necessarily see a ton of panic, I do see a ton of concern.”
George believes most of that concern will affect those advisers that work with the individual IRA market. “For those in the individual IRA market, this rule is a sweeping change,” she says.
People are going through the Q&A and regulation and determining where their firms will end up, says Tim Rouse, executive director of the Spark Institute, a Washington, D.C.-based think tank whose members serve approximately 85 million participants in 401(k) and other defined contribution plans. “You may see some firms [announce] that some advisers are no longer going to be accepting commission products,” he says. “That is part of the process that my membership is waiting to see, where it will all shakeout.”
