Fidelity launches platform to connect plan sponsors, advisers and third-party fiduciaries

In response to the industry’s continued pressure on the fiduciary standard, Fidelity Investments Tuesday launched Third-Party Fiduciary Services, which offers defined-contribution plan sponsors and advisers who offer consulting services to retirement plans a way to outsource fiduciary duties for investments.

Plan sponsors and advisers can use the platform to pick a firm — either Mesirow Financial, Morningstar Associates or Wilshire Associates — and sign an agreement that spells out the terms of the plan sponsor’s obligations and the vendor’s responsibilities. Those third parties will pick from funds and provide sponsors and advisers with updates for new and current investment options.

Fidelity will collect 3 bps from plan sponsors, which will likely pass on that cost to the vendors.

“This is a scenario where they have a co-fiduciary to help them through the process — they are willing to take on the liability,” said Phil Chisholm, vice president of defined-contribution management at Fidelity.

This type of relationship will benefit the smaller firms and sponsors especially, he said.

“You picture a small employer — it’s a manufacturer or professional services firm. They know their industry, but not investments,” Mr. Chisholm said. “This is where these kinds of specialty firms can step in and give peace of mind.”

The word fiduciary has been on the minds of many financial services professionals as of late. The Labor Department proposed a controversial fiduciary rule in April that would require brokers who work with retirement accounts to act in their clients’ best interests.

It has since elicited pushback and debate from government officials and leading industry executives.

Jim Licato, senior product manager for fiduciary services at Morningstar, said that advisers can find difficulties providing fiduciary responsibilities for retirement plans due to a lack of internal resources, a rapid pace of regulatory changes happening in the industry and the growing complexities of investment vehicles.

Specifically, these three third-party vendors will be working under theEmployee Retirement Income Security Act of 1974, or ERISA. Section 3(21) defines an investment fiduciary as a paid professional who provides investment recommendations to the plan sponsor or trustee. Advisers can act as a second fiduciary in these circumstances to provide guidance, Mr. Chisholm said.

Fidelity’s Third-Party Fiduciary Services will also offer an option for plan sponsors who have already hired ERISA 3(38) investment managers to have Fidelity accept direction from fiduciaries who have been specifically appointed to have full discretionary authority to make the actual investment decisions on behalf of the plan sponsor.

“There is an increase in liability with increasing populations for plan sponsors and advisers, coming from the standpoint of potential lawsuits but also the standpoint of the regulators,” said Mike DiCenso, managing director of investment strategies at Mesirow Financial. “So in this, the plan sponsor is looking for deeper protection and a way to manage and mitigate risk.”

Louis S. Harvey, chief executive of Dalbar, a financial services market research firm, said this is an approach referred to as “rent-a-fiduciary,” which was introduced when the Labor Department first introduced a fiduciary initiative in 2010.

“Many folks in the adviser business have been dancing delicately on the regulations that allow them to not take the fiduciary responsibilities and they are really concerned, and firms are concerned, with the new [proposed] regulations,” Mr. Harvey said.

“They are worried thousands of advisers are all of a sudden going to become fiduciaries and with that goes added responsibility as well as liability,” he said.

Mr. Harvey said the real pivotal issue that comes with outsourcing fiduciary responsibilities is the loss of control for advisers.

“If they have to bring somebody else on board with investments, they have diminished their value considerably, and that to me, is where this will turn,” Mr. Harvey said. “If you take that away, what is the role of the adviser?”