The new DOL rule will not immediately change how plan sponsors, who are already fiduciaries, run their DC plans. But it will dramatically affect their relationship with their advisor and service providers, and it could also affect the relationship between advisors and providers, especially DCIOs, when it comes to value added services and other direct support they receive.
The whole value add world is changing radically anyway. With a plethora of material now available on the web, just providing clever whitepapers from the usual suspects of ERISA attorneys, or other marketing materials that advisors have to decipher and repurpose, is not as meaningful as it used to be. DCIO firms are backing away from these expensive value add services that rely on using big name experts, wondering what the ROI is in an era of retraction, where less assets are available to active only mutual fund companies without a TDF strategy.
These days, advisors are looking for actionable services that either save them time through improved practice management or put them in front of prospects in a meaningful and professional environment.
But the new DOL rule won’t just make more retirement plan advisors act as fiduciaries. It puts a greater spotlight on all activities. It’s going to be harder to accept gifts and trips that don’t provide meaningful educational benefits or value to the end client. The 99% of advisors that have come to rely on support from providers will now have to take a closer look at the services provided and the way the support is supplied or paid for.
As I’ve noted before, the DC industry is now a “negative zero sum game” being played by record keepers, advisors and DCIOs. With fees declining overall (and likely to do so for the foreseeable future), advisors relying on provider support that they may now have to pay for themselves will look to extract it through other ways — for example, by using CITs or more index funds.
DCIOs in particular would be wise to carefully review where they are spending value add dollars to determine if they are getting a sufficient ROI.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
