Large broker-dealers expand how they work with small 401(k) plans

UBS, Morgan Stanley, Raymond James, LPL and Merrill Lynch are among the B-Ds giving retirement plan advisers more ways to offer fiduciary investment services to 401(k) plans.

Large brokerage firms are giving more attention to how their financial advisers do business with small 401(k) plans.

Firms such as UBS Wealth Management Americas, Raymond James, LPL Financial, Morgan Stanley Wealth Management, Merrill Lynch Wealth Management and Ladenburg Thalmann Asset Management Inc. have expanded the ways in which their adviser forces can offer fiduciary investment services to employers sponsoring small 401(k) plans.

One goal is to give firms a way to manage risk among relatively inexperienced retirement plan advisers who want to work with 401(k) plans and gives more advisers a way to provide fiduciary services to clients as a greater number of clients are seeking them, experts said.

Another goal is to give specialized 401(k) advisers, who tend to work with larger plans, a more cookie-cutter — and profitable — way to serve small-market clients.

Last month, for example, UBS launched a product called Retirement Plan Manager, which places the fiduciary responsibility for investment management with the home office rather than the adviser.

The firm, which oversees nearly $100 billion in retirement plan assets among its advisory and brokerage clients, assumes fiduciary liability for discretionary fund selection and delivers quarterly investment reports. The adviser manages other aspects of plan service, such as relationship management and employee education.

Morgan Stanley and LPL have launched similar products. Morgan Stanley’s ClearFit debuted in 2017, and LPL’s Small Market Solution came out in 2016. They’re meant for 401(k) plans with assets of less than $10 million and $20 million, respectively. LPL recently told advisers it would cut the fee on its product in half, to 0.10% of plan assets. Raymond James launched its program this summer. Cetera Financial Group is building out a similar program to be launched in mid-2019, according to spokesman Chris Clemens.

Previously, advisers at UBS, similar to those at other large broker-dealers, could offer fiduciary investment services only if they had a particular internal designation. The firm, which has around 6,900 total advisers, has 350 adviser teams eligible to deliver those consulting services.

The new product allows advisers without that designation to deliver fiduciary services to employers with less than $5 million in 401(k) assets.

The wirehouse brokerage is launching a similar program called Retirement Plan Advisor next year, which differs from its counterpart in that the home office won’t select the fund menu for the 401(k) plan but will allow advisers to select funds from a culled-down menu vetted by UBS.

“It’s clear why they’re doing it, putting guardrails around the inexperienced advisers, meaning the ones who don’t do a lot of plans,” Fred Barstein, founder of The Retirement Advisor University, said of these brokerage programs.

Broker-dealers also look at these programs as a revenue opportunity, Mr. Barstein said, because the firms charge a fee for taking on fiduciary liability.

Moreover, experienced advisers using the products “don’t have to reinvent the wheel” when they’re working with small plans, he added. Small plans have fewer assets on which to charge an advisory fee and therefore often deliver less of a profit. Delivering a less customized plan could help shore up the economics of working with smaller clients.

Other firms, like Merrill Lynch, have taken a different approach. Rather than having the home office assume fiduciary liability, the firm is greatly expanding the number of advisers who are able to serve as fiduciaries when working with 401(k) clients.

Prior to the announcement of the expansion plans in March 2017, Merrill had only a few hundred advisers certified to work as 401(k) fiduciaries. It now has more than 4,600.

LPL announced similar plans a few months ago, relaxing some of the internal qualifications necessary to do fiduciary 401(k) business.

Ladenburg Thalmann plans to start allowing advisers to service plans as fiduciaries, on both a discretionary and nondiscretionary basis, beginning in early 2019, according to spokesman Joseph Kuo. Ladenburg has had a packaged product, in which the firm assumed discretionary fiduciary responsibility, for five years and manages $65 million in retirement plan assets.

“There’s been a slow drip of change occurring over the past 10 years or so,” said Gene Silverman, executive director of corporate solutions and retirement services at UBS.

Fee disclosure rules enacted around six years ago, along with 401(k) litigation aimed at employers, which has begun to move down to smaller retirement plans, have led to a greater awareness of fiduciary responsibility among plan sponsors, Mr. Silverman said. The Department of Labor’s fiduciary rule was the “icing on the cake,” he added.