Who Wants to be a Fiduciary Adviser?

Assistant Labor Secretary Phyllis Borzi indicated earlier this week that the new proposed rules governing advice to 401(k) participants should be released by the Labor Department by the end of the month.  The comment period is expected to last approximately 60 days before the rules are finalized.  In the absence of an advice regulation to date, most advisors have been taking a "wait and see" approach before deciding whether to step into the "fiduciary adviser" role as defined by the Pension Protection Act (PPA).

But advisors are starting to get antsy.  At a retirement plan symposium in New York City earlier this week, several speakers, including me, were asked questions about providing advice to participants.  Many of these questions were ones we typically receive and related to whether an advisor is crossing the fiduciary line based on the level of service (advice?) being provided, or centered around computer-driven advice models and the concept of level compensation.  However, some questions were a little different, such as:

1. Should I step into the fiduciary adviser role now (I've waited long enough for the advice regulation), or wait until the regulation is finalized?
2. Is it a prohibited transaction if I manage a participants rollover IRA after they have cashed out of the 401(k) plan?

Whether one chooses to assume a fiduciary adviser role before the advice regulation is finalized is a business decision. There is minimal risk if one is making reasonable efforts to follow what guidance is available. The self-assessment questionnaire that we have prepared does not provide total clarity because the PPA does not get as specific as the associated regulation will.  But, our expectation is that the final regulation will be less stringent. 

If you intend to pursue fiduciary adviser arrangements with plan sponsors based on the premise that the relationships will be profitable because of access to rollover IRAs, we suggest you wait.  To our knowledge, there is no clear consensus on whether providing advice to participants on 401(k) assets, as well as their rollover IRAs, constitutes a prohibited transaction or not.  The final advice regulation may provide some guidance.  If not, then seek the advice of legal counsel.

Comments

[401k_Fiduciary]

"But, our expectation is that the final regulation will be less stringent." Could you elaborate?

[Rich Lynch]

When we developed the self-assessment tool for auditing the arrangement between the plan sponsor and fiduciary adviser, we felt that you would need to examine each plan sponsor - fiduciary adviser relationship. Our sense now is that a sampling of plan sponsor clients may be sufficient to determine if the fiduciary adviser has a sufficient investment management process in place to advise participants.