Perhaps lost in the discussion about the DOL’s proposed fiduciary rule’s effect on IRAs is the fact that everyone seems to have conceded that, in the future, advisors working on DC plans will be acting as a co-fiduciary. Which raises the question of whether an advisor can adequately work with a DC plan and not act as a fiduciary.
Don Trone, the father of the DC industry’s fiduciary movement and founder of 3Ethos, suggests that, “An advisor or broker who is advising a qualified retirement plan would be grossly negligent if they did not possess a strong working knowledge of fiduciary practices...they don’t have to be a fiduciary to adequately serve a plan, but they sure better know what is expected of a fiduciary.”
Trone notes that until 10 years ago, institutional DC consultants advising on hundreds of billions of assets did not act as fiduciaries partly because their clients were not asking. In fact, until relatively recently, independent plan advisors that were able to work as a co-fiduciary used that status as a differentiator.
“Under the DOL’s newly proposed rule, it will be nearly impossible for advisors and brokers to avoid fiduciary status if they are advising a plan on any aspect of investment management, perhaps even plan design,” asserts Trone. “Moving forward, anyone standing within 100 feet of a qualified plan is going to be considered a fiduciary.” Trone also notes, “…it’s the one thing in the [DOL] proposal I agree with.”
“Acting as a plan advisor puts to rest the question of whether the advisor will be liable if something goes wrong,” according to Steve Dimitriou of Mayflower Advisors. Conflicts of interest are avoided when an advisor is compensated the same no matter which investment they recommend. But remember, plan sponsors are much more concerned whether their advisor is helping them to fulfill their fiduciary responsibility and comply with regulations, rather than whether their advisor is able to act as a fiduciary.
The question going forward is can an advisor adequately protect and help DC clients and not be a fiduciary? What do you think?
