Reader Poll: New Fiduciary Factors Driving Some Due Diligence Shifts

As we head toward the end of the year, with the fiduciary rule (or some of it, anyway) behind us and tax reform just ahead, it seems like a good time to look at the prospects for 2018 fees and what factors may be having an impact.

Change does seem to be afoot: 43% of respondents to this week’s NAPA Net reader poll say they have noticed providers repositioning their service commitments, though they say that some, but not most, have been doing so. The rest were in a “not really” camp in terms of seeing those shifts.

As for the impact on their due diligence processes, well, that was all over the board. Roughly one in five said that it had had an impact, but an equal number said it hadn’t. And just as many said “not really,” while roughly 29% said that it had an impact “in some cases, not all.” The rest were in the “in some cases, not many” category.

What kind of impact?

“Recordkeepers giving investment advice are now a competitor,” noted one respondent. “Some vendors are changing what they will do for education and one-on-ones – or not do!” explained another. “Many providers are pulling back on investment reporting but that does not impact us as we have our own due diligence process for that.”

“Certain asset allocation models have become ineligible for a QDIA unless a fiduciary contract is put in place,” commented another. “Certain providers want to be a fiduciary for investment advice to participants but require new docs and attestations.”

Some providers are “using the DOL rule as an excuse for contract changes,” noted another, who said they had also seen providers change how funds are characterized with Morningstar and how underlying funds are evaluated in variable annuities. Another noted that “Some recordkeepers have been eliminated if they can’t provide information on level comp and/or don’t have fiduciary screening tools.” Still another said they were “determining the differences in provider offerings relative to the DOL rule.”

All that change – and potential change – notwithstanding, a clear plurality of this week’s respondents were planning to hang in with their current set of providers, with 43% saying they wouldn’t/hadn’t terminated any providers as a result, another 7% saying it was unlikely, and twice that number indicating “probably not.”

On the other hand, just over 7% said they would; another 7% classified it as “probably” and 21% put it as “possibly.”

As for the most problematic changes, readers cited:

  • product limitations (56%);
  • liability restrictions (53%);
  • compensation structures (11%); and
  • provider (in)flexibility (7%).

“To date, the majority of changes have impacted certain IRA products at certain financial institutions and advisors,” observed one respondent. “These are problematic in that the client or employee now realizes what type of arrangement they unknowingly had by selecting a certain institution or advisor. Now, many that I know wish to change their financial advisor if possible.”

“No fiduciary screening tool,” said another, who noted that their home office needs carrier information on whether each plan has level trail compensation for all investments offered in the plan.

“For my firm we’ve always been fee based, and compensation has not been an issue. But the issue I see is in regard to recordkeepers providing investment advice,” noted one reader. “With these changes the vendors are not doing a very good job of communicating with advisors about these changes,” commented another. “When once a vendor provided a service they now do not, but don’t explain why.”

Thanks to everyone who participated in our weekly NAPA Net reader poll!

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