UpFront | Published in February 2017

Advisers’ Role Goes Beyond Investments

By Lee Barney | February 2017
Art by Wenting Li
The Department of Labor (DOL)’s final fiduciary rule should prompt retirement plan sponsors to take a closer look at the services their advisers are providing, experts say, whether the rule’s implementation gets delayed or not.
The most essential support that advisers should give is detailed oversight of the investment lineup, followed by compliance and fiduciary protection, analysis of fees, provider evaluation, participant education, updates on regulatory and industry developments, and plan metrics/outcomes.
“Plan sponsors have become much more proactive because they believe the new fiduciary rule increases advisers’ responsibilities,” says Andy Schwartz, a principal with Bleakley Financial Group.
Scott Austin, a partner with Hunton & Williams LLP, believes that sponsors have become more attuned to advisers’ services in light of the increased litigation of the past few years and the DOL’s fee disclosure rules in 2012. He is advising the fiduciary committees at his plan sponsor clients “to take a look at their outside advisers and investment managers to understand what their current contractual arrangement purports to be, and whether it is consistent with the new [fiduciary] rule.”
“Clearly, a thorough analysis of the plan’s investment lineup on an ongoing basis is critical,” Austin continues. “Advisers must oversee and monitor all of the plan’s investments and provide periodic reports, not only on the performance of the funds but also an analysis of the underlying fee structure.”
Advisers should benchmark the performance of each investment option at least annually, Schwartz agrees. “However, that is just the first step,” he says. “No mutual fund is the best performer in every environment, so it is important that this process is both quantitative and qualitative. In other words, do not replace an investment option simply because it underperforms. You need to understand why it underperformed so that you can determine the probability of its recovery.”
Compliance and Regulatory Protection

Another important service that advisers should be supplying their sponsors is either 3(21) or 3(38) fiduciary protection, Schwartz says. “We believe the adviser should be the one signing off as the 3(38) fiduciary for no additional fee. That said, 3(38) protection only covers investment concerns. The best fiduciary protection is to hire a discretionary trustee,” he says.
Advisers should also analyze the fees plan sponsors are being charged and benchmark them against similar plans, Schwartz notes. “Fees have been at the center of attention for retirement plan providers over the past decade,” he says. “Obviously, they are important because they can detract from the growth of participants’ assets.”
In line with this, advisers must help sponsors select and continually monitor their providers as well as periodically issue requests for information (RFIs) to determine whether they are receiving all of the services available on the market, says Tyler Finlinson, director of business development at Soltis Investment Advisors.
Educating participants about the importance of participating in the plan, diversifying investments and contributing a sufficient amount is critical, says Tom Foster, a spokesperson for MassMutual Retirement Services. In fact, MassMutual learned through a survey of sponsors that, for 80% of them, this is the No. 1 service they expect from their advisers.
Plan Metrics
While sponsors are accustomed to looking at participation and deferral rates, along with average balances, and more advisers are now evaluating outcomes and retirement readiness, all of these plan metrics are coming to the fore, Foster says. “[The numbers are] the only real way advisers can quantify if they are doing a good job,” he says. “The one thing we as an industry have fallen down on is measuring outcomes. You can have a 100% participation rate,” but if the deferral rates and the allocations are off, the outcomes may not be optimal.
Advisers must also keep sponsors informed on regulatory and industry developments, Foster says. Indeed, the MassMutual sponsor survey determined that plan sponsors want proactive service from advisers, he notes. Ninety percent of the sponsors surveyed said advisers being proactive about potential compliance issues is either extremely or very important.
“Sponsors want to know that their advisers are responsive, listening to their and their participants’ concerns, and keeping them up to date on regulations and laws, which are constantly changing. With the new [Trump] administration, there could be tax reforms and new regulations. Sponsors will want help understanding how these potential changes will impact their plan.”