Resource Center / Magazine

Suiting Up

Elayne Robertson Demby

There’s now no denying it; retirement plan advisers are fiduciaries, or will be soon

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Sam Weber
In 2008, Paul Massey, of Paul Massey & Associates, an independent financial adviser in Dallas, Texas, switched broker/dealers to better service his retirement plan clients. “We made the broker/dealer change so that we could acknowledge our fiduciary role,” says Massey. Massey’s old broker/dealer, Lincoln Financial, would not allow him to assume fiduciary status. Lincoln Financial, he says, was not comfortable with allowing its retirement plan advisers to acknowledge that they were fiduciaries to the plans they serviced.

However, says Massey, who has approximately $60 million in retirement plan assets under management, whether acknowledged or not, he knew he was participating in fiduciary activities and giving the kind of advice that made him a fiduciary. Current clients, he says, wanted ongoing advice on which investment funds to select or drop from the fund menu. New and prospective clients, says Massey, expected his firm to perform clearly fiduciary tasks such as recommending an investment fund lineup and wanted written service agreements as well.

Massey’s new broker/dealer, Securities America, allows him to take fiduciary status if performing tasks that warrant it. “I now can take the fiduciary status on plans I work with,” says Massey. While there were various service changes from one broker/dealer to the other, he says, the biggest value advantage for him was that his new broker/dealer allowed him to operate within a written advisory service agreement with retirement plan clients and take appropriate fiduciary responsibility.

Massey’s tale is not unique. Defined contribution retirement plan advisers have seen the writing on the wall, and there is no escaping the word “fiduciary.” If an adviser works extensively with a retirement plan, experts say, it is virtually impossible to claim that adviser is not a fiduciary to the plan because of what services retirement plan clients expect from their advisers.

Broker/dealers have seen the writing as well, and are creating programs to accommodate the new reality. There are still broker/dealers, such as Merrill Lynch, aggressively arguing that their advisers are not fiduciaries but, generally, the independent broker/dealer industry, in the last five years, has been moving in the direction of allowing more representatives to acknowledge that they are fiduciaries, says Amy Glynn, Director of Retirement Consulting Services with Commonwealth Financial Network in Waltham, Massachusetts.

Commonwealth Financial Network launched a program in August 2009 to allow its producers to get certified through a number of programs, including the Accredited Investment Fiduciary Program and the Chartered Retirement Plan Specialist, and formally acknowledge their fiduciary role in the client contract, says Glynn. Prior to launching the program, Commonwealth did allow advisers to act as fiduciaries, but only two or three platforms were available. Now, she says, advisers can be fiduciaries and place plans with any provider they want. “It’s the first true vendor-agnostic independent program of any broker/dealer,” she says.

Whether or not a defined contribution plan adviser is a fiduciary to the plan is a matter of facts and circumstances, says Roberta J. Ufford, a principal with the Groom Law Group in Washington (see “Pop Quiz”). To some extent, it is governed by the contract and the actions of the adviser.

However, advisers themselves seem to believe they play that role. “My personal feeling is that, if you’re touching a retirement plan, then you’re a fiduciary,” says Stephen R. Popper, the Managing Director of SageView Advisory Group in Boston, Massachusetts, a dually licensed registered investment adviser (RIA) and broker. “I have the ability to influence decisions made regarding other people’s assets,” he says, “which, under the common law definition, makes me a fiduciary.” Popper’s firm has claimed fiduciary status to its clients since January 2007.

Additionally, whether or not an adviser is technically a fiduciary is meaningless if the client is unhappy. The reality is that, when push comes to shove, it is hard to say you are not a fiduciary if it comes to litigation, says Doug Igel, a senior analyst with Precept, a full-service benefits consulting firm in Irvine, California. Igel says that his firm does not currently formally acknowledge fiduciary status, but realizes eventually they will have to do so. Igel acknowledges that his firm may have fiduciary obligations to clients as plan advisers when providing consulting services to retirement plans. However, he says, the agreement between clients and Precept is not intended to give Precept any discretionary authority or any discretionary responsibility for retirement plans. “The relationship of Precept to retirement plans is intended to be that of a directed adviser with respect to the advisory services within the Services Agreement. Our client, as plan administrator and plan fiduciary, has the ultimate authority to make the final discretionary decisions as they pertain to the plan,” he says.

“If something goes wrong with the plan, and I am responsible, it does not matter if I’m a fiduciary or not; the client will sue and likely collect,” asserts Michael Kozemchak, of Institutional Investment Consulting in Bloomfield Hills, Michigan. If a client asks his firm to sign up as a fiduciary, it will. However, he has observed that, when clients seek outside ERISA (Employee Retirement Income Security Act) counsel on the matter, most attorneys discourage their clients from elevating the consultant to the level of fiduciary. “Most recognize that, if we screw up, we’re going to pay no matter what we’re called,” he says.

Popper believes that, since advisers have the liability whether they acknowledge it or not, it is probably better just to acknowledge it. “In my opinion, you get more protection saying you’re a fiduciary,” says Popper. Whether or not the adviser takes the label, he says, the liability is there but, if you accept and acknowledge the liability, you can quantify it, and protect yourself against it. Once you acknowledge the liability, you can quantify it based on plan assets, then protect yourself by putting in place processes to limit the liability.
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