Retirement plan advisers are preparing for major changes
Experts weigh in with best practices retirement plan advisers should make sure they have in place given pending industry shifts
Big changes loom for retirement plan advisers.
The Labor Department is poised to move ahead with a fiduciary rule for brokers who work with retirement accounts, and the Supreme Court is set to weigh in on Tibble v. Edison International, a case that centers on whether retirement plan fiduciaries are protected by a statute of limitations on fiduciary violations.
We asked the experts: What best practices should retirement plan advisers make sure they have in place now given the coming shifts? Here’s what they said.
“Best practices must meet the more-stringent standards millennials demand over the weaker standards often acceptable to their parents. Take fee and expense transparency. Younger clients will just not tolerate the opaqueness that is the norm in many practices today. They want to know not just what they pay in fees or planning expenses; they want to know why. Clear and complete expense information is not a choice — it’s an imperative.”
Knut A. Rostad
Founder and president
Institute for the Fiduciary Standard
“In this complex and volatile regulatory environment, it is critical that firms redouble their compliance efforts. It is equally important that you get engaged in the legislative and regulatory process. Reach out to your elected officials at the federal and state levels, and share with them information about your business, your clients and how you are helping Main Street Americans save for retirement and a financially secure future.”
Dale Brown
President and chief executive
Financial Services Institute
“The most efficient way to prepare for potential changes is to eliminate as many conflicts of interests as possible. For years, our profession has relied on disclosure as a way to mitigate conflicts. Going forward, that very well may not be enough. NAPFA has always advocated for a very strong fiduciary standard and it is the reason our members are prohibited from receiving compensation from any recommendation they make to clients, regardless of whether those clients are retirement plan sponsors or individual investors.”
Robert Gerstemeier
Board chairman
National Association of Personal Financial Advisors
“Advisers should make sure they put in place a simple rule: Stay informed about industry practices, carefully monitor your client’s matters and always act in the best interest of the person for whom you are providing advice.”
Jerome J. Schlichter
Founding and managing partner
Schlichter Bogard & Denton
“Tibble v. Edison could have huge implications with respect to the statute of limitations and a plan fiduciaries’ duty to monitor. If this case goes the way of the petitioners, then a past decision of a fiduciary that was prudent at the time could come back to haunt them in the future. Plan sponsors and the various service providers they are working with need to take their duty to monitor seriously and not just be checking off fiduciary due diligence requirements for today.”
Gerald J. Wernette
Principal and director of retirement plan consulting
Rehmann Retirement Builders
“The Edison International case is, at its essence, about whether a plan is using its purchasing power to purchase the appropriate share class of mutual funds. It is possible, perhaps even likely, that the issue of “appropriate’ share class falls on the shoulders of a fiduciary adviser. As a result, advisers need to make sure that they are evaluating the share classes of the mutual funds they are recommending to ensure that the plan is getting the lowest-cost share class under the circumstances.”
Fred Reish
Partner
Drinker Biddle & Reath
“Regardless of the outcome of the Tibble case or the new fiduciary rule, the single most important thing advisers can do is to put the best interests of their clients above all else. What does this mean? First, thoroughly learn about your client and their needs. Second, have a prudent process to identify investments that meet your client’s needs. Third, have a robust process to monitor those investments.”
Marcia Wagner
Managing director
Wagner Law Group
“We’ve built a framework for advisers to improve retirement outcomes through participant education, which can include risk profile questionnaires and asset allocation models under the DOL safe harbor for non-fiduciary education, as well as the framework for the true technical plan level fiduciary, who have always been held accountable for their recommendations, at both the plan and participant levels.”
Paul Mahan
Senior vice president, retirement consulting services
Commonwealth Financial Network
“Retirement plan advisers should always follow a prudent process in delivering services to their clients. We truly believe clients’ interests come first and that includes making sure they have a thorough understanding of their role and responsibilities as a plan sponsor and the role and responsibilities of their adviser.”
Bo Bohanan
Director of retirement plan solutions
Raymond James Financial
“We see the traditional 401(K) market continuing to mature, which will further drive market consolidation and continued advisory fee marginalization, but at the same time offer tremendous opportunities for retirement practices that are willing and able to innovate and enter new markets.”
Jim O’Shaughnessy
Managing partner
Sheridan Road Financial
Learn more about reprints and licensing for this article.
