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

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."

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