Empower telling 401(k) clients it won't be a fiduciary when DOL rule kicks in

Some observers question the move and at least one believes the firm may still be a fiduciary no matter what it claims

Feb 28, 2017 @ 1:52 pm

By Greg Iacurci

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Empower Retirement, one of the largest record keepers of defined contribution plans in the U.S., is planning to send notices to its retirement plan clients affirming it does not intend to be a plan fiduciary if and when the Labor Department's conflict-of-interest rule's implementation phase begins.

"As a record keeper and directed service provider, Empower does not intend to offer plan level investment advice under ERISA to you as plan fiduciary," according to a copy of a document that Empower intends to email employers March 1.

Empower sent a separate email, obtained by InvestmentNews, to advisers last week notifying them the record keeper would be sending this notice to advisers' clients.

"I think Empower is an outlier" among other record keepers, Marcia Wagner, principal of The Wagner Law Group, said of the notice to plan sponsors.

"I think it'll upset a lot of Empower's clients who thought they were fiduciaries," she added. "Putting it in people's faces like this, I'm not sure is helpful, and I'm not sure why they're doing it."

In its adviser email, Empower said the document is "part of our ongoing DOL fiduciary rule communication and documentation plan." Empower spokesman Stephen Gawlik said the firm sent the notification to clients to support its adviser-centric model, whereby the record keeper takes direction from sponsors in consultation with their advisers.

Empower is the third-largest record keeper by DC assets, with about $400 billion under administration, and ninth by number of plans, with around 34,000 total, according to the most recent data from InvestmentNews' sister publication Pensions & Investments.

Record keepers have had to adjust some of their practices to follow guidelines set forth in the DOL's fiduciary rule, which raises investment-advice standards in retirement accounts. Its implementation date is currently set for April 10, but the Trump administration is seeking a delay.

Empower president Edmund Murphy said in January the Greenwood, Colo., company would manage fiduciary risk "through the implementation of prudent processes and careful management controls."

"Routine transactions will remain non-fiduciary," he said at the time. The company began contacting sponsors last year to describe differences between fiduciary advice and non-fiduciary education.

Record keepers today generally hold themselves out as non-fiduciaries to the plans they administer. But a service provider affirming it's not a fiduciary doesn't mean it's not one, observers say.

"Record keepers have run from being named a fiduciary," said Fred Barstein, founder and CEO of The Retirement Advisor University. "Just the fact that they say [they're not a fiduciary] doesn't mean it's true."

He pointed to Question 33 of the most recent tranche of frequently asked questions the DOL released on its fiduciary rule to demonstrate additional difficulty for record keepers going forward.

Record keepers have traditionally recommended investment lineups to plan sponsors fitting that specific client's investment policy statement, Mr. Barstein said; but this particular FAQ says a record keeper may make a fiduciary recommendation if it exercises discretion in providing a narrowed down "selective menu."

"There's a changing relationship between the plan sponsors and providers, and that's a job advisers have to manage," Mr. Barstein said. "That's a big job."

Additionally, Empower's plan-sponsor notice asks clients to affirm if they hold $50 million or more in retirement assets. (The fiduciary rule doesn't consider investment-advice activity with clients of this size to be a fiduciary recommendation.)

Empower also asks clients to affirm that the plan's investment adviser is serving as an independent fiduciary, and that clients understand Empower "is not undertaking to provide impartial investment advice in a fiduciary capacity to the plan sponsor."

Affirmative answers to such questions are necessary "in order for Empower to continue to provide plan level review and design services for the plan after the applicability date of the new rule," the document says.

"In order to comply with the fiduciary rule, we must assure that plan sponsors and their advisers qualify as 'independent fiduciaries with financial expertise' as required under the rule," Mr. Gawlik said.

He added that roughly a third of Empower's plans currently work with a fiduciary adviser, and it expects that number to double when the DOL rule goes into effect. For those plans that do not, the firm offers different options for a third party fiduciary service, Mr. Gawlik said.

Some advisers are happy Empower is undertaking this communication with plan sponsors.

"I think it's great that Empower is doing this and I wish more service providers would communicate what their role is, fiduciary or not," said Aaron Pottichen, retirement services practice leader at CLS Partners, based in Austin, Texas.

"Too often we make this process more complicated than it has to be and making it simpler is always appreciated by clients," he added.

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