MassMutual to level 401(k) fees for its brokers

Massachusetts Mutual Life Insurance Co. is moving to level compensation brokers receive for working with 401(k) plans, a step other large brokerages have taken in response to the Department of Labor’s fiduciary rule.

The firm, which has more than 9,000 advisers, said compensation must be the same for all funds in employer-sponsored retirement plans governed by the Employee Retirement Income Security Act of 1974, effective June 1.

MassMutual is no longer allowing compensation earned on deposits into the plan, currently a common practice for all brokers in the small market. MassMutual is only allowing brokers to earn trailing commissions, which must be the same in each successive year, based on assets under management.

The plans are part of a broad strategy the firm laid out in a March 20 e-mail for retirement plan advisers, which was reviewed by InvestmentNews.

The DOL fiduciary rule, which raises investment-advice standards in retirement accounts, has led many broker-dealers to change how their advisers can service retirement accounts such as 401(k)s.

Merrill Lynch and Morgan Stanley this month also announced their advisers will need to receive level fees when servicing retirement plans.

“The strategy … reflects the increased awareness of plan trustees regarding their fiduciary responsibility and potential need for support in selecting their plan’s fund line-up, whether or not the Department of Labor (DOL) fiduciary regulation becomes applicable in the near future,” according to MassMutual’s e-mail.

The Trump administration is soon expected to issue a 60-day delay to the rule’s current implementation period, set to begin April 10.

MassMutual’s business changes apply to two brokerage arms: MML Investors Services and MSI Financial Services Inc., the latter of which is the broker-dealer formerly affiliated with MetLife Inc.

MassMutual purchased MetLife’s U.S. retail adviser force, the MetLife Premier Client Group, last year, which added roughly 4,000 advisers.

Michael McNamara, a MassMutual spokesman, said the recently announced changes are also meant to harmonize business practices post-merger.

MassMutual’s decision appears to be a play at eliminating variability in levels of adviser compensation and ensuring fees for service are reasonable, said Jason Roberts, CEO of the Pension Resource Institute, an ERISA compliance consulting firm.

“That’s where most firms are headed,” Mr. Roberts said.

The DOL under President Barack Obama viewed such fee variability as something that could promote a conflict of interest among advisers and create incentives for advisers to promote certain funds or platforms over others.

Also effective June 1, MassMutual brokers will only be allowed to charge a maximum asset-based fee to plans at the time of a sale. The fee scales down for larger plans.

For example, plans with up to $1 million in assets can only be charged a level 1% on assets, whereas plans with between $5 million and $10 million can be charged a maximum 0.50%, and those with more than $25 million in assets 0.27%.

It also appears brokers will not be able to provide fiduciary investment advice to plan clients; rather, they’ll have to use an outsourced investment fiduciary provider available through a plan’s record keeper to receive investment recommendations.

Those can include outsourced 3(21) or 3(38) investment services, which are sections of ERISA that designate non-discretionary and discretionary investment responsibilities, respectively.

Brokers can also select from a list of about 15 record keepers, which can offer products with a specified fund lineup to plans.

Morgan Stanley is taking a similar approach for its non-specialist retirement advisers with respect to plans with less than $10 million in assets. For plans of a greater size, non-specialists must partner with advisers the firm has designated as specialists.

MassMutual also outlined changes for its specialist advisers. For example, to be able to charge advisory fees to clients an adviser must have a minimum of 10 retirement plans and $10 million in plan assets.

It’s not clear from the firm’s e-mail if these specialist advisers will be able to continue providing discretionary investment advice to clients, or if they will, similar to brokers, need to use a packaged fiduciary product.

The MassMutual spokesman declined comment.