NOW: If the fiduciary rule takes effect, sponsors need to understand beforehand how their service providers will handle the requirements. “Sponsors should be asking each of the companies that provide services to their plan if they intend to act as a fiduciary,” Jacobson says. “If so, I would ask what fiduciary processes they are going to put in place. And ask them what prohibited-transaction exemptions are they going to use, if any, and what safety precautions are they going to use to make sure they don’t violate the exemptions?” She also recommends previewing participant communications from your adviser and other providers, with the new rules in mind.
FUTURE: Sponsors may move away from advisers still receiving commissions and utilizing an exemption, says Eric Droblyen, president and CEO of Employee Fiduciary, a third-party administrator (TPA) in Mobile, Alabama. “When someone puts an adviser contract with a BIC [best interest contract] exemption in front of me now, it’s a dense and technical contract that explains, ‘This is why I think my commissions do not create any conflict with my investment advice,’” he says. “It’s going to be very hard for those financial advisers to explain to a sponsor how they are not putting it at fiduciary risk. I think more sponsors will say, ‘I want to keep it simple. I’m just going to hire a fee-only adviser,’ without having to wade into the dense contract necessary to meet the BIC exemption.”
“Some of the communications to participants might have language that, under the previous regs, [were] considered ‘education’ but, under these new rules, might be considered ‘advice,’” she says.
2017 Key Issues at a Glance
Outlook for new fiduciary rules unclear
Money market reform brings investment shifts
Fee lawsuits leading to stronger prudent processes
Use of zero-
revenue-share funds expands
Fee-focused move to passive manage-
Participant allocation issues remain, even with TDF use
Sponsors look at retirement-income alternatives
Financial wellness becomes a hot topic