Insurer spreads fiduciary umbrella to keep small plans

New York Life Insurance Co. has kicked off a program that will allow agents to meet the tougher fiduciary requirements set by the Labor Department.

Under the program, which began last month, agents affiliated with the insurer’s Eagle Strategies LLC registered investment adviser can maintain relationships with plan sponsor clients if they outsource investment management duties to a third party. In this case, participating agents may outsource investment management to Morningstar Investment Services Inc. and other managers.

“The program provides our advisers with the flexibility to act as an [Employee Retirement Income Security Act] fiduciary and to act as an impartial adviser while outsourcing individual fund selection and investment management services,” said Paul McClung, a corporate vice president in agency life operations at New York Life.

This program and others like it mark the latest effort by insurers to preserve their brokers’ and agents’ slices of the retirement plan pie as the Labor Department rolls out rules aiming to eliminate conflicts of interest in retirement plans. Those rules, including a proposed regulation that would expand the definition of “fiduciary” and a fee disclosure rule that would require brokers and advisers to reveal whether they were acting as fiduciaries, threaten to shake brokers and agents out of the retirement plan market and tilt the business toward registered investment advisers.

New York Life isn’t alone in its efforts to adjust to the rules. Securian Financial Group Inc. has instituted a program that will allow its reps and others who use Securian Retirement as a service provider to continue working with their retirement plans while handing fiduciary responsibility to 401(k) Advisors LLC. Securian’s program went into effect for all new business written as of Jan. 1.

Compared with their independent counterparts, insurer-affiliated broker-dealers have felt the pains related to the new regulations acutely, as their parent companies manufacture products that can be sold to small retirement plans or provide other related services.

In addition, broker-dealers may be unwilling to spend the money necessary to build out viable 401(k) fiduciary programs if doing so is merely an accommodation to a relatively small number of advisers who dabble in the retirement business.

“Given the proposed changes in regulations, we’re seeing these insurance-owned broker-dealers try to get their arms around how to cope with these changes, how this will affect their business and what they’ll allow their reps to do,” said Estee Jimerson, director of relationship management and business development at Morningstar Investment Services.

NEW PARTNERSHIPS

Morningstar recently teamed up with Pension Resource Institute LLC, a consulting firm, to allow brokers to outsource investment management to a third party — and insurer-affiliated broker-dealers have been calling, Ms. Jimerson said. In fact, PRI drafted the program in use at New York Life, PRI chief executive Jason C. Roberts said.

While the New York Life and Securian programs address the same broker and regulatory issues, each operates differently.

New York Life agents affiliated with Eagle Strategies can choose an investment manager from a suite of companies for their plan sponsor client, Mr. McClung said. Advisory fees are paid by the plan or the plan sponsor, and neither Eagle Strategies nor the adviser collects a fee from the investment manager.

In arrangements such as this, the manager assumes responsibility for constructing the fund lineup and choosing appropriate funds. Advisory fees are fully disclosed to the plan sponsor, and the adviser doesn’t collect any incentive pay.

Under the Securian plan, 401(k) Advisors provides plan sponsors with access to an investment manager and takes on the investment responsibilities, acting as a fiduciary.

“Our target market is plans between $1 million and $10 million, and 90% of that business is handled by reps, not RIAs,” said Vincent Giordano, sales director at Securian.

“Several firms across the country told us they don’t want their reps acting as fiduciaries,” he added. “But if they’re working with $8 million or $9 million plans, they’re competing with outside firms. So how do they provide the same level of fiduciary support?”

Advisers said that as long as investment choices are attractive, advisers at insurer-affiliated broker-dealers should be able to remain competitive.

“Keep in mind that they’re competing against true independent fiduciaries, and in order for them to compete, their products have to be competitive — they have to provide a meaningful value proposition,” said Matthew Hutcheson, an independent ERISA fiduciary at an eponymous firm.

E-mail Darla Mercado at [email protected].