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Which retirement plans are affected by undoing the investment-advice fiduciary rule?


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I’m hoping BenefitsLink people will help me crowdsource some background for a research project.

 

The research project assumes that, whether on May 7 or by some later date, a court issues a mandate to vacate the 2016 investment-advice fiduciary rule.  The first of the questions is:  which plan-sponsor fiduciaries are affected by that result?

 

If one follows the rulemaking’s 2015-2016 reasoning, it is small plans that more need to be protected from communications by those who, but for applying the to-be-vacated 2016 rule, might not be held to fiduciary standards of loyalty and care.

 

But how small is small?

 

In recent years, I’ve seen plans smaller than the Labor department’s $50 million dividing line use registered investment advisers who sign contracts expressly accepting status and responsibility as an ERISA fiduciary.

 

In your experience, what size sorts plans between those unlikely to use a fiduciary adviser and those likely to use a fiduciary adviser?

 

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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We've been a 3(38) fiduciary since well before the original proposed  fiduciary regs.  Most of our clients are small plans (under 100 participants).  At least in our market, size doesn't seem to have much to do with making the choice to use a fiduciary advisor. We are a full-service firm and our clients appreciate that.   I can see the argument that small plans might be more likely to focus on fees and avoid a more expensive service provider that is a fiduciary. 

 

Sorry, I'm not much help, but maybe there will be some other responses.

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I don't think there will be a huge drop off of advisers who accept fiduciary status because it will be in demand even without a rule.

It think it comes down to the structure of the plan and plan sponsor rather than the assets.  Are there checks and balances (committees or some sort of oversight) on how the adviser is selected?  If yes, you are probably more likely to have a fiduciary adviser.  This is certainly not limited to plans with $50 million in assets. I see this in plenty of plans with assets under $10 million.

If the plan sponsor is smaller and the decision making is in the hand of just one or two business owners, the selection tends to lean more towards an adviser with a pre-existing relationship, or in other words "the guy/gal who does my personal investing".  

There will be plenty of fiduciary advisers out there even for small plans.  Even before the rule I could point prospective clients to several advisers who were both fiduciaries and reasonably priced.  

 

 

 

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Kevin C and RatherBeGolfing, thank you for your helpful observations.

Others' outlooks?

And does anyone have a guess about how ADP, Paychex, Fidelity, John Hancock, and others that serve small plans will react to the erasure of the fiduciary rule?

 

 

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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I work for a different company than those you mention - but we have a very LARGE book of SMALL plans.  We have no plans to undo that which we implemented to be compliant with the "Rule."  There may be some changes, but throughout the process and the litigation, our stance has been it is the "right thing to do."  In some cases we changed processes to not be a fiduciary, and in others we decided to become a fiduciary (our distribution/rollover people are licensed and fiduciaries).

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Yesterday evening, I heard that Fidelity, 92 days before the 2016 rule's delayed applicability date, sent many customers a service agreement amendment, which ostensibly was deemed assented to if not expressly rejected.  The amendment offered services for which Fidelity expressly recognized its status as a fiduciary.

Perhaps such a written undertaking might make Fidelity a fiduciary even if it otherwise might not be under the absence of the 2016 rule.

Does anyone know whether Fidelity's amendment is conditioned on the application of the 2016 rule?

 

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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