Well, here we go again. After years and years spent on the fiduciary rule, we’re back to the start. It truly is "Groundhog Day." At this point, we can all make guesses, but I’m going to refrain from suggesting where the Department of Labor, Securities and Exchange Commission, state legislatures, or other self-regulatory bodies are going to land with their different flavors of a fiduciary rule. Instead, for now we’ll focus on a few key considerations plan advisors and their clients now face in light of our new unknown fiduciary landscape.
First, regardless of whether you grimaced or rejoiced at the 5th Circuit’s decision vacating the DOL’s fiduciary rule, as an advisor, you now face a key decision tree — what services was I providing as a fiduciary? Are some or all of these services still fiduciary services? Do I still want to say I’m a fiduciary for some or all of these services? Just as under the DOL fiduciary rule you had to segment each activity, fiduciary rule de-implementation works the same way. It doesn’t need to be too hard or require that much effort, but it isn’t always as easy as waiving a magic wand!
Second, beyond the basic decision tree, there is a business and marketing side to consider. How have you positioned yourself with your clients? Some would argue that the DOL fiduciary rule permanently transformed the market, while others might not. Regardless, many advisors have now told their plan sponsor clients that they are fiduciaries. If you decide that you will apply a different standard of care to one or more services going forward, how do you explain this change to your clients?
Third, how do you avoid confusion going forward? In the late 1990s and early 2000s, many registered investment advisers made names for themselves as acting as fiduciaries for their clients. The market then adapted with a wide range of service providers calling themselves fiduciaries. The created a world in which what it meant to be a fiduciary varied widely among service providers. This same world is likely to be our reality again for the foreseeable future; advisors will need to be able to clearly explain how the providers to their clients are or are not fiduciaries — as well as what that terms means in each case.
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Fourth, while the DOL fiduciary rule triggered many business changes, two services received significant attention: in-plan advice and distribution advice. Some advisers and other service providers saw the change in the fiduciary rule as an opportunity to begin or enhance their in-plan advice and distribution advice services as ERISA fiduciaries. Others decided not to provide these services. Now some who went into one or both of these areas are revising their service models, with some providers ceasing their fiduciary status and others maintaining fiduciary status for some (but maybe not all) of these services. An advisor’s insight and guidance on what these changes mean, and how they are disclosed, is more essential than ever.
These four considerations are just the tip of the iceberg. With the 31 flavors — and more — of what it means to be a fiduciary floating around, advisors need to evaluate their own practices as well as continue to refine their services to their clients in this constantly changing world.
David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column appears in the Summer issue of NAPA Net the Magazine.
