With the fiduciary rule set to go into effect in April 2017, now is the time for employers to reevaluate their service agreements on what exactly a service provider is responsible for and what they aren’t, a panel of experts said last week at an event sponsored by Lockton.
When the Labor Department issued the final rule in April 2016, it referred to this guidance as the “conflict of interest” rule, its purpose being to protect retirement savers from biased advice from financial advisers and investment professionals, according to Barb Van Zomeren, vice president, ERISA, at Ascensus.
What is happening now is service providers are determining if they are a fiduciary or not, which is important for clients to know, explained David Levine, principal at Groom Law. Employers should understand what their service provider is and then understand what is changing. “Look at your service agreements and evaluate them,” Levine said.
Many service providers are currently putting “floaters out there with consultants,” added Thomas Clark, president of Lockton Investment Advisors, at the event in Washington. These early actors are the companies determining their next steps. “There isn’t a clear path, you don’t want to be first or do something one way or the other way,” he said.
Taking a hard look
As a result, employers should also take this time to re-evaluate their fund process and go through a provider checklist. “If you don’t have an investment committee charter, think of making one,” Clark said. “It [lists what] the investment committee … does [and] doesn’t do.”
After that, employers should “take a hard look” at their investment policies and service agreements, he added.
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“Now is the perfect time to review and understand [your service agreement],” Clark explained. “Most of these service agreements are going to change.”
Levine believes that many service providers might simply send a new agreement to a client and tell them to sign it, but he advises to take a good look and know what they are agreeing to in the contract. If an employer is not comfortable with the language in it, they should consult outside counsel. Particular language to pay attention to, Levine said, includes who is jointly and severally liable and where the payments come from, as it is negotiable.
When making changes to the agreement, Levine reminds employers and plan committees that “email is not your friend.”
“Assume your emails may come out and it may be used against you in a court of law,” he said. “Assume anything you [say] can be there. Think before you send. Discuss, document, [but] don’t fire off that wild email; it can hurt you.”
