DOL fiduciary rule creates ‘prime hunting season’ for 401(k) specialists

A panel of executives representing broker-dealers and registered investment advisers said the fallout from the Labor Department’s new fiduciary rule would create a ripe opportunity for advisers specializing in 401(k) plans to steal business away from less-specialized “generalist” advisers.

“We think there will be a lot of plans in play,” said J. Fielding Miller, chief executive of CAPTRUST Financial Advisors. “This is kind of like prime hunting season for our industry.”

As opposed to retirement “specialist” advisers, who derive most of their business from the defined-contribution-plan market, generalists, or “dabblers,” tend to derive most of their business through wealth management and may have only a handful of retirement plan business.
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The Department of Labor’s new rule, which raises investment advice standard in retirement accounts, puts pressure on the dabblers to reconsider if they want to be in the retirement business, Mr. Miller said Tuesday morning at the National Association of Plan Advisors’ 15th annual 401(k) summit in Nashville.
INCREASED LITIGATION RISK
Several smaller firms will struggle to comply with the new rule, and the additional risk of private litigation action will “scare” some providers to turn away from the retirement business, according to Edward O’Connor, managing director of retirement strategy at Morgan Stanley.
The additional compliance and litigation risk associated with the new rule has been a focal point of the NAPA event.
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William Chetney, chief executive of GRP Advisor Alliance, said the contraction would be “better for the ones that are left.”
As the industry moves toward full implementation of the rule, which phases in through the end of 2017, players with supposed conflicts in the eyes of the DOL and who are unable to mitigate those disputes according to the text of the regulation in a timely way make themselves vulnerable to specialist advisers, Mr. Miller said. Specialists prospecting business can point out to plan sponsors that their current adviser is conflicted, for example, he said.
“It’s a great time to grow market share,” Mr. Miller said on the conference sidelines.
In order for dabblers to continue doing 401(k) business at Morgan Stanley, they may be required to get additional credentials pertinent to the retirement plan market or partner with an adviser who has the appropriate credentials, according to Mr. O’Connor.
“We’ll make it more and more difficult to do 401(k) business at Morgan Stanley if you’re a generalist,” Mr. O’Connor said.
IMPACT ON ROLLOVER BUSINESS
The panelists also discussed the impact of the rule on rollover business, saying there will likely be less rollovers as fewer brokers and advisers recommend rollovers, and more participants will keep their money in-plan as a result.
Retirement assets staying in plan will be a boon to plan providers, the panelists said.
“This is definitely a tailwind for them,” according to Mr. Chetney. “There will be less ‘shysters’ trying to take money out on an unreasonable basis.”
Those firms for which rollovers represent a primary part of their economic model will have to rethink that business model, according to Mr. O’Connor. “Rollovers will become a less important part of anyone’s business model,” he said.