Lessons 401(k) advisers learned from the DOL fiduciary rule saga

Retirement plan advisers, especially specialists, used to complain that their broker-dealers and the public ignored them — or, worse, didn’t realize they existed. All that has changed now that retirement has become a key political issue and retirement advisers have a target on their backs.

So now that it appears that the Department of Labor fiduciary rule is dead, following a decision by the U.S. Court of Appeals for the 5th Circuit to vacate the regulation, what happens next and what lessons have we learned?

Assuming the fiduciary rule is taken off the books, most broker-dealers are not going to walk back the changes they have made as a result of the regulation. That’s not just because of the significant investments they made but also because acting as a fiduciary — in the best interest of their clients — is the right thing to do.

The DOL rule — which upped investment advice standards in retirement accounts — gave generalist broker-dealers — those who don’t specialize in retirement-plan business — the justification to do what they have wanted to do for a while: force advisers who want to act as fiduciaries to have the proper training and experience. Or, absent that, make all others either partner with a fiduciary adviser or use packaged products, including outsourced fiduciary services.

For specialist retirement plan advisers and RIAs, the DOL rule was pretty much a nonevent. They were already acting as fiduciaries and not using commissioned products.

Advisers in the middle, who have not yet committed to focusing on corporate retirement plans, will either double down or get out of the business. There is no middle ground — plan sponsors, awoken in part by the DOL rule, continue to get smarter, and regulators are getting tougher. More plaintiffs’ lawyers, smelling blood in the water, will be attracted as well, especially when the market turns south and 401(k) participants look for someone to blame.

Like fee-disclosure regulations promulgated in 2012, the DOL fiduciary rule is an example of the government regulating what was already happening within the DC industry anyway, heralded by specialist advisers and RIAs. But it usually gets it wrong when it steps in, because it doesn’t understand the retirement business.

And just because the defined-contribution advisory business is a wholly owned subsidiary of the federal tax code doesn’t mean that retirement plan advisers should abrogate intellectual and moral leadership to lawmakers and, even worse, lobbyists. Specialists need to set the agenda and their lobbyists should figure out a way to get it done. The question is, who is the voice of these specialists?

So with the focus on retirement by the press and governments, both state and federal, driven by a growing awareness of the looming retirement crisis, we need to be realistic and brutally honest with ourselves by:

• Focusing on improving retirement security through actions like adopting open multiple employer plans;

• Not rejecting ideas because they threaten our current business model, which may be outdated;

• Using academic (rather than industry-funded) research, which starts with a search for the truth, not the validation of a premise;

• Embracing technology and big data as well as the convergence of benefits like 401(k)s and health savings accounts;

• Helping overworked and undertrained human resources professionals in charge of their organizations’ 401(k) or 403(b) plans to engage employees and senior management.

Advisers are the key because the professionals at smaller organizations tasked with designing and running the 401(k) and 403(b) have limited resources, training and knowledge. So they turn to their adviser for almost everything, especially what’s next and what’s best.

Fred Barstein is the founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’ Retirement Plan Adviser newsletter.