It is nearly impossible for an adviser to effectively help an employer manage their DC plan without doing what it takes to make them a functional fiduciary. Realizing that many advisers, or those that were traditionally called brokers, could not become named fiduciaries, others that could do so used it as a weapon in head-to-head competition.

Other advisers have used the "F" word to scare employers while the regulators seem to be trying to mandate the status without really understanding how the DC world works, especially when it comes to working with both employers and employees.


Moving to stewardship

Clearly there is massive confusion and misuse of a term that was intended to distinguish well-intentioned advisers and help improve outcomes. So while we are not advocating that the industry drop the term, we think that it's time to move to a more holistic, less technical term that does not carry the baggage for advisers that do the right thing for clients. To that end, we suggest using "steward" or "stewardship."

Recently, Morningstar moved to new stewardship ratings of companies based on less quantitative criteria like corporate governance and more holistic measures like capital allocation or how companies are treating shareholders. Stewards have many definitions, but applied to the financial services industry, defines steward as, "... a person who manages another's property or financial affairs; one who administers anything as the agent of another or others."

The concept of stewardship is even more important in corporate-directed retirement plans where there are two clients whose interests may not be aligned.

Most plan sponsors want nothing, or as close to it as possible - no cost or work and limited liability. Participants want (or should want) their DC plan to replace as much income as possible when they retire. Though idealistically advisers who want to be good stewards should focus on the participants' interest, they must first satisfy the needs of the plan sponsor who ultimately determines whether that adviser gets hired. And this is the problem with the technical definition of fiduciary - an adviser can fulfill the legal obligations of a fiduciary to plan sponsors, but fall short when it comes to being a good steward for participants.


Measuring results

Though it is tempting, we cannot judge advisers solely based on results first, because a bad steward could manage good results over a short period of time and also because there is no objective measurement of which advisers are actually delivering better outcomes for the participants in their plans. Technical definitions of a fiduciary, which means discretionary authority over another entities account in other contexts, do not necessarily apply to the DC world, and the fact that an adviser is willing to take on fiduciary responsibility without assets to back them up if something goes awry are not going to solve anything. The question of what activities define a good steward in the context of DC plans might include compensation (level and reasonable), transparency, free of conflicts of interest, training, experience in the market and for the types of plans serviced either by size or type, as well as the due diligence performed on the partners and products they recommend. Assuming we could agree on the elements that make up good stewardship for a DC adviser, we are still left with the question of who should measure them.

While it may be simplistic to use the same criteria for stewardship that the Supreme Court uses in determining pornography, there needs to be some over-arching theme, such as "good stewards put the interest of their clients first before their own and often at their own expense." And though we do not want to judge good stewards based solely on results, it would be equally unrealistic to think that the market will embrace stewardship unless there are improved results.

If advisers want to be able to charge clients a premium, or at least avoid being priced like a commodity, they need to go beyond the 3 "F's" - fees, funds and fiduciary. Just calling themselves fiduciaries or fulfilling the technical requirements will not elevate advisers in the minds of their clients any longer. The new elite DC advisers will act like stewards through a whole series of activities that show they are putting their clients' interests first, which hopefully results in improved participant outcomes - the proverbially "doing well by doing good." Until then, we will continue to be bombarded by the "F" bomb - especially from regulators.

Reach Barstein of The Retirement Advisor University at

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