Whenever the DOL’s fiduciary rule is promulgated, there is already a move toward greater scrutiny of plan advisors, with more acting as a fiduciary on DC plans, if not IRAs.
Fee disclosure and transparency were already growing realities formalized and perhaps accelerated by 408(b)(2) and 404(a)(5). Similarly, the DOL reg seems likely to accelerate change to the plan advisor landscape. So who benefits the most, and how could the reg affect the DC plan advisor market?
In order of least affected/hurt are likely to be:
1. Pure RIA plan specialists who do not manage rollovers or participant money outside the plan.
2. Plan specialists within a BD that “gets it” and who do not manage rollovers or participant money outside the plan.
3. Pure RIA plan specialists who manage rollovers or participant money outside the plan.
4. Plan specialists within a BD that does not “get it,” but who do not manage rollovers or participant money outside the plan.
5. Plan specialists within a BD that does not “get it” who manage rollovers or participant money outside the plan.
6. Emerging advisors within a BD that “gets it.”
7. Emerging advisors within a BD that does not “get it.”
Will Emerging Plan Advisors disappear from the DC landscape? Not likely, but the movement toward specialists with at least $25 million DC AM seems likely to continue, from about 10% of the plans a decade ago to about one third today, leveling off at 50% in the next three years. Remember that more small companies are likely to offer some kind of plan as a result of government initiatives, many of which will work with Emerging Advisors.
Emerging Advisors, most of which will likely not be allowed to serve as fiduciaries (assuming their BD actually knows what they are doing), will have to outsource fiduciary oversight, working within very strict guidelines, investments and fee structures with a limited number of providers. Almost every advisor will be considered a plan fiduciary under the DOL’s proposed broader definition.
Core and Elite Plan Advisors working with BDs that do not “get” the DC industry who force those advisors to live under restrictions created for Emerging Advisors will run for the hills, looking for groups and/or BDs that are sympathetic and supportive.
It’s all part of a natural evolution of an industry just starting to mature, as plan sponsors wake up to the reality that picking an experienced advisor who is “right” for them and their employees is not only a fiduciary decision, but one that can have a significant impact on the viability, not just liability, of their company. Fun to watch.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
