401(k) plan sponsors are increasingly hiring fiduciary advisers

The DOL fiduciary rule and excessive-fee lawsuits are combining to raise the profile of fiduciary retirement plan advisers.

Employers sponsoring a 401(k) plan, especially small business owners, are increasingly hiring investment advisers who serve as fiduciaries to their retirement plan, new research suggests.

About 70% of all 401(k) plans used an independent investment adviser — separate from the plan’s record keeper — to assist with fiduciary responsibility in 2016, according to a new study from the Plan Sponsor Council of America. That’s up about 3 percentage points over 2013.

“There’s been a focus on fiduciary responsibility in light of all the lawsuits and the fiduciary rule,” Hattie Greenan, the PSCA’s director of research, said. “I don’t think it’s surprising we see an increased use of plan sponsors using independent, outside advice.”

The trend is most pronounced among smaller plan sponsors, PSCA data shows. 401(k) plans with between 50 and 199 participants saw use of fiduciary advisers swell 10 percentage points, to 67% of plans, from 2013 to 2016.

Similarly, plans with between 200 and 999 participants saw growth of 8 percentage points, to 77%; the smallest plans (1-49 participants) got a boost of 7 points, to 59%.

Lawsuits attacking employers for allegedly high 401(k) fees have proliferated over the past few years. Such lawsuits have claimed employers breached their fiduciary duty by allowing participants to be overcharged for services such as administration and investment management.

These fee lawsuits have primarily targeted the largest employers — those whose retirement plans have billions of dollars in assets — but speculation has mounted that litigation will come down market to smaller plan sponsors with more regularity.

Further contributing to the trend is the Department of Labor’s fiduciary rule, which increases investment-advice standards in retirement accounts and was issued in April 2016. National debate on the regulation and coverage of it in mainstream media combined to further raise the profile of the term “fiduciary” and advisers who provide fiduciary advice.

The rule partially went into effect in June 2017, instantly turning thousands of brokers, who’d been servicing 401(k) clients as non-fiduciaries, into fiduciary advisers.