With that question, one of the panelists at a March 21 session at NAPA’s 2017 401(k) Summit captured the discussion’s import: There are matters fiduciaries must address regardless of what the fate of the fiduciary rule is.
Panelists included moderator Lisa Kottler, Senior Vice President of Retirement at NFP; Jason Roberts, founder and CEO of the Pension Resource Institute; Karen Scheffler, Senior ERISA Legal Counsel at AB; and David Levine, Principal at Groom Law Group.
Panelists were unwilling to speculate about the rule itself. “Informed wild speculation” was how Roberts characterized it. “No one knows” about what will happen with the rule, Levine agreed, adding, “anyone who does — look askance.”
Scheffler said that regardless of the rule’s final disposition, “there are certain market changes that are afoot that aren’t going to go away.” For instance, said Scheffler, the current practice of considering 401(k) rollover plan assets to be ERISA plan assets is one of the “sorts of trends that will continue.”
“My advice,” said Levine, is “look at what you’re doing, consider what you’re doing. Don’t get caught up in the nuances of the regulations.”
Start with the Services
Roberts said that at his firm, “we say, ‘Let’s start with the services.’” He recommends looking at demand and considering what the needs of client sponsors are, what the market is and how to fulfill those needs.
“The biggest gaps I see,” said Roberts, are in wealth management agreements that have been repurposed. “In those I find that if you’re going to disclose that you’re a fiduciary — with regard to what? Make sure that’s clearly set out,” adding, “You cannot contract around fiduciary duty.”
Careful Is as Careful Does
“I think you should be careful. Don’t lock yourself and your client in,” said Levine. “The starting point you should be coming from,” he said, is to ask yourself how you make money and where the money goes. “As a fiduciary, it is important to do things carefully,” Levine said. “I have seen many times in which the Department of Labor asks if there is money behind the scenes.”
Scheffler readily agreed, noting that when she worked at the DOL, they were “suspicious of everyone. There was always something to find.” And she doesn’t appear to think things are any different now. “There is going to be an approach of suspicion.”
So how can advisors best gird themselves for that? “Being able to vet what you’re doing against best practices is really vital,” Scheffler said. She added that in her experience, she has learned most people want to do the right thing, “But they don’t know how to do it.”
Roberts, too, sounded a note of caution that not only is DOL not backing down on enforcement, there is the market to consider. “When the market goes down, claims go up. Clients don’t like to lose money,” he said. Not only that, he cautioned, the DOL’s been very clear that “QDIA protection evaporates” under certain circumstances.
Scheffler questioned how serious a risk of lawsuits advisors run. “If you look at the litigation out there, it’s all against plan sponsors,” she said. “You don’t really see financial advisors named in lawsuits along with plan sponsors. It raises the question — how big is your risk, and what is your responsibility to assist plan sponsors regarding litigation?”
Still, Levine suggested, “You need to have resources so your business can keep going “ in the event that you are involved in a lawsuit.