Morningstar launching 401(k) service for broker-dealers worried about DOL fiduciary risk

Because platform initially will be offered through B-Ds, firm doesn't see it undercutting plan advisers' business, though it has considered going direct to plan sponsors

Aug 8, 2016 @ 3:49 pm

By Greg Iacurci

+ Zoom

Morningstar Inc., the mutual fund research and ratings shop, is planning to launch a 401(k) service early next year for broker-dealers looking to minimize risk created by a Labor Department fiduciary regulation.

Many industry watchers have argued the DOL rule, which makes a fiduciary of anyone providing investment advice in retirement accounts, could push some advisers — especially those who are not retirement specialists — to abandon clients in order to mitigate liability.

Some broker-dealers may not even allow their advisers the option to serve as fiduciaries to retirement plans because of the risk.

Broker-dealers looking to minimize fiduciary liability in 401(k) plans have three choices once the DOL rule is implemented in April 2017, according to James Smith, vice president of retirement solutions at Morningstar: abandon 401(k) plans altogether, greatly expand their ranks of specialist advisers who can take on the plans ditched by generalists, or outsource 401(k) responsibility.

Morningstar's new service, an online platform called Morningstar Plan Advantage, will allow a broker-dealer to retain a 401(k) plan with which it's already doing business. An adviser would not be managing it, though — Morningstar would be handling record-keeper selection and provide plans with fund lineup design and management.

“Rather than monitor thousands of advisers, they're monitoring us,” Mr. Smith said of the broker-dealer firms that opt for the service.

Because the service will initially be offered through broker-dealers looking to mitigate risk, rather than marketed directly to plan sponsors, Mr. Smith doesn't see it as something that will undercut plan advisers' business. However, Morningstar has had internal discussions to make it a direct-to-plan-sponsor service, Mr. Smith said, but talks are inconclusive at this time.

(More: The most up-to-date information on the DOL fiduciary rule)

Anthony J. Domino Jr., managing principal at Associated Benefit Consultants, points out that a good 401(k) adviser adds more to a client relationship than just the record-keeper selection and investment management, through things such as plan enrollment, participant education and plan design.

Mr. Smith said plans, especially those in the small market with generalist advisers, typically work with a third-party administrator rather than their adviser to handle some of these functions, and Morningstar has built its model to accommodate this.

The firm hasn't yet decided on a service fee level, but says it will be a basis-point charge on assets and will be uniform among the various record keepers.

Morningstar is already one of the larger providers of outsourced fiduciary investment management services in the 401(k) market. Now, the firm will also help plan sponsors select a record keeper after assessing items such as a participant demographic profile and real-time pricing from record-keeping firms available over the platform.

Phase two of the service launch will involve determining how to do regular monitoring of record-keeper services, which Morningstar will work on likely through 2017, Mr. Smith said.

Fred Barstein, founder and chief executive of The Retirement Advisor University, believes “the opportunity Morningstar sees is very real.”

“I think that there's definitely going to be a void with the Department of Labor, where some advisers who under the new definition will be considered fiduciaries may not want to be fiduciaries,” he said.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Oct 17

Conference

Best Practices Workshop

For the fifth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video

Events

Pershing's Crowley: The case for business transformation

Your practice is changing rapidly. What worked five years ago might not work for the next five years. Pershing's Jim Crowley has some solutions as your business evolves.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

CFPs, including brokers, may have to adhere to a stricter fiduciary duty

CFP Board revises its standards and aims to beef up fiduciary requirements of certificants.

CFP Board's proposal to expand fiduciary duty draws praise, carries risks

Some question whether brokers will drop the CFP mark or if the CFP Board will strictly enforce its new standard.

Meet our new 40 Under 40s

Introducing 40 young leaders in financial advice. Learn how their passions are driving their success and fueling the future of the industry at large.

W.P. Carey exiting the nontraded REIT business

With regulations and other factors changing the marketplace, the publicly traded REIT will focus on its core business in the net lease market.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print