The Department of Labor's fiduciary rule is leading record keepers of 401(k) plans to adopt wildly divergent compliance strategies.
Take Fidelity Investments, Empower Retirement and T. Rowe Price, three of the largest defined-contribution-plan providers, for example.
At one extreme, there's Fidelity, the largest record keeper, with roughly $1.4 trillion in DC assets under administration, according to the most recent data compiled by InvestmentNews' sister publication Pensions & Investments.
The firm has communicated it will assume fiduciary responsibility in some participant interactions, such as investment recommendations made through its call center. It has also said it can be a "point-in-time" fiduciary at the plan level, through advice to employers on which funds to include on their investment menus.
T. Rowe, the 11th-largest provider, with around $145 billion in DC assets under administration, sits at the opposite end of the spectrum. It plans to keep its interactions to both plans and participants non-fiduciary in nature, according to advisers familiar with the firm's communications to clients.
Empower — third-largest, with $393 billion — sits in the middle, saying it will begin offering fiduciary guidance to participants through call-center interactions, but will avoid fiduciary status at the plan level. Plan-level fiduciary duty will be handled by advisers and outsourced providers.
"These record keepers are all over the board, and we still don't know what some of them are going to do," said Susan Shoemaker, a partner at Plante Moran Financial Advisors.
"I was surprised at the extremes of T. Rowe and Fidelity," she added.
Some of this activity represents a departure from record keepers' current business practices, and could have big implications for plans and advisers. At the heart of their metamorphosis is the fiduciary rule, an Obama-era regulation that raises investment-advice standards in retirement accounts like 401(k)s.
When the rule's implementation period begins April 10, the rule will turn some investment recommendations once considered non-fiduciary in nature into fiduciary advice, creating more risk for record keepers who continue to do things in the traditional way.
Record keepers have taken on fiduciary responsibility in the past, but have generally done so on a limited basis, said David Levine, principal at Groom Law Group.
"It's a change, yes," for some providers to now say they'll do it on such a broad scale, Mr. Levine said.
"I think it's just a difficult issue for them to deal with, and they've felt their way through the process to different conclusions," said Charles Humphrey, principal at an eponymous law firm and a former DOL attorney. "There may not be a best answer."
Fidelity's decision to be a "point-in-time" fiduciary at the plan level was of particular interest to advisers.
While fiduciary advisers generally assist with fund selection as well as ongoing investment monitoring and due diligence, observers explained that point-in-time fiduciary status would only cover an initial recommendation, leaving a 401(k) plan sponsor with responsibility for ongoing monitoring.
"For these people to take the liability and the point-in-time but not on an ongoing basis is, in my opinion, not quite fair to the plan sponsor," said Shawna Christiansen, a retirement consultant at Retirement Benefits Group. "Because the plan sponsor, without help, isn't going to continually monitor their investments."
"It is a very restricted fiduciary," Ms. Shoemaker said of being a point-in-time fiduciary. "I'm not saying it's bad. It's a business decision. Their business decision is interesting."
Fidelity is only offering this service to clients with less than $50 million in qualified retirement assets and who don't currently have a fiduciary adviser, observers say. Clients with greater than $50 million are considered to be sophisticated investors under the fiduciary rule, and providers' recommendations aren't considered fiduciary in nature.
Chad Larsen, president and chief executive of MRP, a Denver-based registered investment adviser with more than $3 billion in retirement plan assets, said he views activity by record keepers taking plan-level fiduciary responsibility as "direct competition."
Two of his client prospects, who'd worked directly with Fidelity in the past (in other words, without an adviser intermediary) but thought it was time to seek out an independent fiduciary adviser, ended up staying with Fidelity after receiving notice from the record keeper about its plan-level fiduciary service.
"The plan sponsor thinks, 'Hiring Chad and MRP, that may be an additional expense,'" and it may seem more attractive to the sponsor to take the record keeper's service if price for record-keeping services stays the same or only costs a little more money.
"I try to explain [to sponsors] there still is an inherent conflict of interest, whether [the provider] acknowledges it or not," Mr. Larsen said.
It's unclear if Fidelity will be able to recommend its own funds through its point-in-time recommendations to plan sponsors, which is where such potential conflicts could come into play.
In the past, record keepers have been able to make such recommendations without fear of advice being fiduciary in nature. Now, however, record keepers with proprietary mutual funds would likely need to use the best-interest contract exemption to make such a recommendation and avoid running afoul of the fiduciary rule, legal experts say.
There are record keepers that avoid recommending proprietary funds as a fiduciary. Wells Fargo Institutional Retirement and Trust, the record-keeping unit of Wells Fargo & Co., doesn't offer proprietary funds through a plan-level fiduciary service introduced roughly a year ago, said Chad Breunig, head of IRT's fiduciary services group.
"We remain committed to putting the needs of our customers first, and are preparing to be compliant when and if [the rule] becomes effective," Fidelity spokesman Steve Austin said. The Trump administration is seeking a 60-day delay to the fiduciary rule, which would push its implementation date to June.
He declined additional comment for this story.
For T. Rowe Price, shying away from fiduciary responsibility with respect to rollover recommendations is a surprising move to some advisers.
Record keeping is often described a loss-leader for some asset managers — a business which, on its own, is generally seen as having tight margins and increasingly difficult to make profitable; however, it provides value to asset managers because it offers a way to interact with participants and potentially capture future IRA rollovers into proprietary investments.
A T. Rowe spokesperson didn't respond to a request for comment.
"The fact we have so many of the large record keepers looking at this, all their legal teams looking at it, and coming up with such a variation of approaches is somewhat troubling to me, personally," Mr. Larsen said.