How to choose a plan-sponsor partner to adapt to DOL fiduciary rule

While independent financial advisers and firms wait anxiously to see the final form of the Labor Department’s rule that expands the definition of fiduciary, we know one thing with relative certainty: The market for providing advice on retirement plans will look significantly different by this time next year.

Financial advisers currently have latitude in determining the service model that works for their clients when it comes to advising retirement plans. Some practices focus entirely on providing fiduciary advice to plan-sponsor clients. Others work with only a handful of retirement plan sponsors and attempt to engage with their clients solely in a nonfiduciary capacity.

JUST ONE SERVICE MODEL

Once the DOL rule goes into effect, however, the range of possible service models for advisers supporting retirement plan clients likely will be reduced to just one: If an adviser provides advice to a plan sponsor or plan participant, that adviser will be treated as a fiduciary.

As a result, thousands of independent advisers will need to quickly scale the learning curve and provide fiduciary services to their current and future retirement plan clients, or they may have to exit the retirement plan business.

What criteria should advisers look for in a partner that can help them adapt to this momentous shift in a way that ensures the continued growth of their businesses?

1. Fiduciary expertise and dedicated educational resources. The specific responsibilities of a plan fiduciary can be difficult for advisers to grasp, from repeatable pro-cesses for developing investment recommendations to mapping out communication policies on conveying these recommendations to a plan’s investment committee. When selecting a partner, advisers should seek organizations that have deep experience in ex-plaining the obligations of a fiduciary and can help them sidestep common pitfalls.

While third-party partners may be helpful, advisers should also consider working with a broker-dealer with dedicated resources in this area, one that offers a fiduciary platform.

2. True capabilities in retirement plan practice and consulting. Understanding fiduciary responsibilities is purely academic, unless advisers translate this knowledge into concrete business practices. Therefore, they should seek pro-viders that offer structured practice consulting processes that focus on helping advisers build retirement plan practices while also helping them tackle complex, specific business opportunities as needed.

The consulting process for an adviser’s practice should take into consideration the business’ strengths and weaknesses to produce an in-depth analysis of its opportunities and goals. It then should help advisers develop a road map to meet those goals, complete with measurable milestones and implementation guidelines.

Additionally, advisers should look for in-depth consulting support to help them win new business opportunities, including case-by-case assistance with complex plan design and administration challenges.

3. Strong client communication and participant-education capabilities. The DOL rule is widely ex-pected to accelerate the need for retirement plan-focused advisers to shift from a value proposition that’s focused primarily on investment management to a more holistic “retirement readiness consultant” service model. To bring value, plan-focused advisers will need to incorporate services that improve out-comes for participants and meet the goals of plan sponsors.

Advisers should look for retirement-platform providers that also can help improve plan participants’ engagement and level of education. While challenges such as increasing contribution and enrollment levels can be addressed through strong plan design to some extent, advisers should be attuned to a platform partner’s ability to help them build a productive dialogue with participants using streamlined regular updates and other communications.

Thousands of independent fi-nancial advisers who serve plan-sponsor clients on a non-fiduciary basis soon will be facing a difficult choice about the future of their practices. They are about to find themselves in a new environment in which advisers accustomed to operating as fiduciaries will have a substantial advantage.

By taking a rigorous look at potential retirement plan business partners, however, these advisers can even the playing field and position themselves for continued growth in serving retirement plans in the years ahead.

Jon Anderson serves as director of Cetera Retirement Solutions at Cetera Financial Group, a network of independent broker-dealers with nearly $240 billion in assets under administration as of June 30.