DOL fiduciary rule ups ante for monitoring of 401(k) record keepers

Several plan providers have expanded their participant-call-center services to include fiduciary advice, and advisers must help clients navigate the change

Oct 4, 2017 @ 2:20 pm

By Greg Iacurci

+ Zoom

The Department of Labor fiduciary rule is changing how retirement plan advisers help their clients monitor record-keeping firms such as Fidelity Investments and Empower Retirement.

The regulation, which raises investment-advice standards in retirement accounts, has caused providers to alter how they interact with participants through their call centers. Several have said they will offer participants fiduciary guidance, such as advice on rolling over into individual retirement accounts, while others have indicated they will only interact with participants in a non-fiduciary capacity.

Monitoring such activity is uncharted territory for 401(k) advisers, and they're only beginning to flesh out how to carry out the responsibility.

"It's very new, and it's evolving," said Barbara Delaney, founder and principal of StoneStreet Advisor Group.

Large record keepers such as Fidelity, Empower, Wells Fargo Institutional Retirement and Trust, and John Hancock Retirement Plan Services are expanding the services available through their call centers, by offering fiduciary advice services to participants, if plan sponsors elect the service.

(More: Large record keepers Fidelity, John Hancock and others expanding fiduciary duties.)

Other companies such as Vanguard Group and T. Rowe Price have indicated they will only interact with participants in a non-fiduciary capacity via call centers, by providing education on distribution options, for example.

Plan sponsors have a fiduciary duty to monitor service providers such as record keepers, and some 401(k) advisers serve as fiduciaries when helping plan sponsors carry out this oversight. Whereas that oversight didn't previously extend to detailed call-center examinations, advisers will now have to help monitor record keepers' expanded fiduciary services, practitioners and attorneys said.

"This is new. But somebody has to do it," said Philip Chao, principal and chief investment officer at Chao & Co. "The plan sponsor has their obligation, and they don't know how to do it. They're, quite frankly, not sure-footed about what they're looking at. So we have to help them think about it."

Mr. Chao is performing these expanded monitoring duties for one client and plans to do it for others.

QUARTERLY REVIEWS

Here's how Mr. Chao considers the monitoring exercise: At the end of each quarter, he will ask the record keeper to make available several data points related to participant interactions through the call center. For example: How many participants called and wanted distribution advice? Out of those, how many ended up staying in the 401(k) plan, rolling into an IRA or moved to a new employer's plan?

Then, Mr. Chao will randomly select two or three participants, view their files and listen to the call-center recordings to ascertain how the reps interact with participants and ensure they are delivering objective advice.

Similar to Mr. Chao, Ms. Delaney will begin asking record keepers for a log of participant calls to examine the advice that was provided.

"It's becoming a big job, monitoring," Ms. Delaney said. "What are their call centers saying to participants? If they're fiduciaries, how do we protect participants and ensure [the providers] are making the right calls?"

The DOL fiduciary rule as of June 9 vastly expanded who was considered a fiduciary when giving retirement investment advice. Prior to the rule, call-center reps could give recommendations about rollovers without it being considered a fiduciary act. Now, those same rollover recommendations are likely to be fiduciary advice, and providers have responded in different ways.

ADVICE ENGINES

Record keepers are delivering the fiduciary advice to participants via combinations of proprietary advice engines and those supplied by third-party providers such as Morningstar Inc.

Fidelity's advice engine, for example, is proprietary, spokesman Charles Kabat said.

(More: Fidelity's approach to DOL fiduciary rule rankles some 401(k) advisers.)

Empower uses third parties to guide investment allocation discussions, spokesman Stephen Gawlik said. Distribution discussions related to rolling assets into plans or decisions made by terminated participants leverage a proprietary Empower engine, he said.

Separately, most major record keepers also make fiduciary advice available to participants via in-plan managed-account services. T. Rowe Price, one of the firms that isn't offering fiduciary services via call-center reps, does make advice services from Financial Engines and Morningstar available through its record-keeping platform.

"This type of support and service will probably be something more people will look for," David Levine, principal at Groom Law Group, said of advisers' record-keeper monitoring duties. "This might be one way someone shows value. Everyone faces pressure from commoditization."

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

Why are most advisers stuck in the trenches?

What are top advisers doing to stand out? Scott Conroy of Carson Group offers some strategies for success.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

E*Trade acquiring custodian Trust Company of America

Discount broker buying second-tier custodian for $275 million.

Another thousand Dow points higher, and investors yawn

Market milestones keep falling like dominoes, with 51 records broken so far this year.

LPL retains $570 million with super-OSJ deal

Kansas-based nVision Wealth will come under supervision of Chicago-based IHT Wealth Management.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print