In a year when the word “fiduciary” has been tossed around like an unmoored ship in a hurricane, it's perhaps not surprising that, for the first time, 401(k) plan sponsors are saying concern over fiduciary duty is the top reason they choose a plan adviser, according to a new
Fidelity Investments survey.
A Labor Department regulation, known as the fiduciary rule, coming into effect next year will raise investment-advice standards in retirement accounts such as 401(k)s, and plan sponsors have definitely taken notice, according to Jordan Burgess, head of defined-contribution investment sales at Fidelity Institutional Asset Management.
Aside from ongoing industry discussions about the rule and its implementation, chatter around conflicted investment advice and fiduciary responsibility seem to have
emerged as a Main Street issue following the rule's release in April. Late-night comedian John Oliver
discussed its importance for investors on his HBO show in June, for example.
Last year, prior to its release, President Barack Obama thrust the rule in the spotlight by
directing the Department of Labor to re-propose the regulation, which it previously shelved.
Now, 38% of plan sponsors are concerned about their fiduciary duties, according to Fidelity's seventh annual plan sponsor survey. That's a jump of 14 percentage points over last year's 24%, and is the first time it's ranked as sponsors' top priority in adviser selection.
“What we've seen over the past two to three years is fiduciary popped into the top four, and took a big leap this year,” Mr. Burgess said.
A record-high 69% of the 976 sponsors surveyed, whose plans range in size from 25 to 10,000 participants and use a variety of record keepers, ranked an adviser's willingness to take on a formal fiduciary role as “important.”
Aside from the Labor Department rule, litigation targeting corporations for breach of fiduciary duty relative to their 401(k) plans has ramped up just within the last year. A spate of similar suits against prominent universities were
filed last week.
Plan sponsors want help from advisers understanding their fiduciary responsibilities, and are looking for someone to take on some of the fiduciary liability, Mr. Burgess added.
“Adviser willingness to do that is a key reason they hire the adviser,” he said.
“We think DOL is top-of-mind, and think they want to make sure they have a process for review of advisers,” Mr. Burgess said.
Reasons that ranked behind fiduciary concern are: needing help with plan investments; wanting a better understanding of how well the 401(k) plan is working for employees; and having less time to devote to the plan and needing someone to help.
Twenty-three percent of plan sponsors, a high for this Fidelity survey, said they are actively looking to change advisers, with the top reason being the need for an adviser knowledgeable in a variety of areas. That's up from
17% last year and a low of 10% in 2013.
Approximately 87% of survey respondents use a plan adviser or consultant. Independent research firm e-Rewards conducted the survey on Fidelity's behalf.
