The new DOL fiduciary rule is the government’s acknowledgement of the growing use and importance of plan advisors. Though the DC industry has come to accept that the use of advisors in DC plans predominates — as evidenced by Fidelity research showing that 84% of plans with 50-10,000 employees use an outside advisor — it sometimes takes the government a while to not only realize new trends but to try to regulate them. In fairness, the DOL’s efforts started in 2010, right around the time NAPA was forming.
So while the industry tries to get its arms around the costs and repercussions of the new rule, these trends had already been happening. More plan advisors have been acting as fiduciaries; many have moved to fee based or flat fee compensation; fewer advisors are selling proprietary products; and more plans are using specialist advisors. The DOL’s rule is perhaps a punctuation point on the fact that advisors are and will be an entrenched part of the DC and IRA ecosystem, which means the government will not only take notice, but do their best to regulate them.
The good news for advisors focused on DC plans is that they are now officially part of this ecosystem along with record keepers, money managers and, in the smaller markets, TPAs. But the focus is clearly on them. Though “emerging” advisors will not disappear, especially for plans with less than $3 million in assets, more plans will hire specialist advisors through a prudent, documented process that takes into account their resources, experience and costs, along with the value they provide in terms of results, not just based on relationships.
So if you’re interested in the DC market and are ready to be totally transparent about your fees, services, value and ability to act as a fiduciary, these are good times, courtesy of the DOL.
But if you are not ready to commit, taking half measures and hoping no one will notice, you may find yourself targeted by lawyers emboldened by recent successes and ready to use the DOL rule as a powerful weapon.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
