Magazine

feature | PLANADVISER September/October 2016

Fiduciary Crunch Time

Retirement industry providers are preparing careful responses to the fiduciary rule

By John Manganaro editors@assetinternational.com | September/October 2016
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Art by Cinyee Chiu

Be honest—have you read the whole thing?

The final published form of the Department of Labor (DOL)’s landmark fiduciary rule weighs in at over ­1,000 pages.

Anyone even half familiar with the nitty-gritty of employee benefits law and of federal rulemaking in general can imagine just how terse those pages are, and just what the process of actually sitting down and carefully digesting the mountain of paper and ink entails. Luckily for advisers and plan providers alike, there is no shortage of ERISA [Employee Retirement Income Security Act] attorneys to provide guidance.

One voice is Steven Wilkes, a partner with the Wagner Law Group, who is based in Boston. Wilkes says that, as plan advisers head into the final quarter of 2016, many will need to institute formal changes to ensure compliance with the DOL’s fiduciary rule reform.

It will not be easy or particularly fun, actually sitting down to read the rulemaking language, he admits, but there is so much that can vary from practice to practice, individual firms absolutely must perform their own close review.

Even for firms that decide to maintain their old business models and rely instead on the Best Interest Contract (BIC) exemption, technical compliance does not ensure client satisfaction. Experts interviewed for this article pretty much agree that flat-fee models clearly favored by the DOL for being perceived as less conflicted will have a competitive edge in the new fiduciary future.

“As you consider and then implement any necessary adjustments to compensation, any ERISA counsel you have access to should review your documentation and the documentation needed by any providers you work with,” Wilkes says. “It’s a complicated rule, but there is nothing like engaging with the language yourself and asking the tough questions for yourself, whether about your own business or that of a partner.”

On Wilkes’ reading, the new rule “clearly broadens the scope of advisers who will be deemed individual retirement account [IRA] or defined contribution [DC] plan fiduciaries.” What is less clear are the specific approaches individual firms and advisers will take to ensure compliance—not to mention how these approaches will stack up against one another and affect client decisionmaking throughout the sales and service process. So, in that sense, the big task currently ahead of advisers is to understand both internal and external change driven by the rule.