Compliance October 13, 2017

PANC 2017: The New Conflict of Interest

Under the evolving fiduciary landscape, how can an adviser protect the business while offering effective advice to clients?
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Speaking on the second day of the 2017 PLANADVISER National Conference in Orlando, Donald Stone, executive director, Pavilion Advisory Group, warned that there are many easy fiduciary hurdles to get tripped up by in the evolving regulatory landscape.

“The Department of Labor (DOL) has long been concerned about the fiduciary rule reform issue, and it has gotten tougher on this issue,” Stone observed. “As we all know by now, the department wants to provide a better set of guideposts for advisers and brokers to follow to minimize and disclose conflicts.”

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Alice Palmer, managing counsel for Nationwide, agreed with that high-level assessment. Complicating the matter is the fact that the Trump Administration has signaled it wants to reverse the fiduciary rule expansion led by DOL, but it has so far not actually done so.

“And so it can be difficult to know where we stand,” Palmer observed. “In a sense, the tougher fiduciary rule reforms are in effect, but there is this ongoing delay in full enforcement. Overall, it’s very muddy, where we are right now.”

From her vantage point, Palmer said she agrees with the spirit of the fiduciary rule expansion, but she worries about its potential unintended consequences. Most concerning among these is that the rule expansion in some important ways gives more latitude and authority to states and state courts—and the plaintiffs’ bar—to potentially get more active on enforcement. Federal preemption issues aside, it’s a concerning picture. 

“Should the system as it stands right now come into full effect, there is little doubt there would be even more litigation than we already see today, and, worse, it would be spread out over the 50 state court systems—each with their own sets of precedence and standards,” Palmer speculated. “I think that situation would be very harmful in the long run, depending on how courts interpret federal preemption of retirement planning law. This is untested.”

NEXT: Seemingly endless regulatory uncertainty

Phil Troyer, vice president of compliance for Bukaty Companies, agreed that this would be a harmful outcome for both providers and clients in this industry. He commiserated with advisers in attendance who are clearly feeling confused and frustrated about the seemingly endless regulatory uncertainty.

“It’s like we’re playing in a basketball game and every five minutes someone changes the rules—or says they’re about to throw out the rulebook entirely,” Troyer said. “It is not easy to build a plan for the future in this environment. And for that reason, this is potentially a very difficult and damaging environment, in my opinion. If you have long been a fee-only adviser, you might not be as affected, but there are many, many people in the industry who remain very concerned and, frankly, confused.”

Given this situation, Palmer urged advisers to be hyper-diligent about conflicts, both real and perceived: “You just have to be as cautious and attentive and precise today as you can. If you are providing tailored advice, you are a fiduciary, so you have to understand any and all conflicts you may face across the different parts of the business.”

Troyer agreed, concluding that effective documentation and disclosure will go a long way, even in this challenging time, to protect an advisory practice and its clients from legal liability: “Of course, you also have to be careful about documentation when you’re thinking of protecting the sponsor. You don’t just document your choices. You have to document why you are making those choices. It is so crucial.”

Compliance October 13, 2017

PANC 2017: Maximizing the Workplace Savings System

Retirement plan advisers are in a unique position to help working Americans build wealth and a sense of security and dignity when it comes to thinking about long-term finances. 
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Talking about his new book, “From here to Security – How Workplace Savings Can Keep America’s Promise,” Bob Reynolds, president and CEO of Great-West Financial and Putnam Investments, urged advisers to “fight to create a new sense of a true People’s Capitalism.”

Reynolds spoke on the second day of the PLANADVISER National Conference in Orlando. What he means by advocating for a “true People’s Capitalism” is the idea that not enough Americans have access to the financial markets, particularly in the form of tax-advantaged workplace retirement savings plan—and this needs to change.

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“We know that the more savings you have in a society at large, the faster the growth rate of the overall economy,” Reynolds explained. “This seems counterintuitive because the invested retirement dollars are not going straight to consumption, but the growth comes because the money is injected right into the capital markets, and this, in turn, spurs on the economy. Talking about ‘Peoples Capitalism’ means building a direct link from the retirement planning conversation to the growth and stability of the economy. We should all be able to participate and benefit from the markets.”

As described in Reynolds’ new book, there is ample evidence to show that, should providing at least basic access to tax-advantaged workplace retirement savings be mandated for all employers, there would be some $5.5 trillion in additional savings injected into the capital markets over just the next decade.

“I don’t have to explain that such a large amount of additional investing would be a tremendous impetus for boosting growth,” Reynolds said. “This is why I am fully in support of things like open multiple-employer plans, as well as universal access in the workplace to payroll deduction individual retirement accounts.”

Turning to the potential role of the advisers in attendance in promoting Peoples’ Capitalism, Reynolds observed that “every study we’ve done on the subject shows the clear value of advisers in this whole business.”

“When there is a skilled plan adviser in place, we very reliably see participation levels go up, contribution rates go up, and annual returns go up,” Reynolds said. “And so, we know the role of advisers in the business has been greatly successful and we need to continue this.”

He also repeatedly urged advisers to get in constant contact with their elective representatives and stress the crucial importance of protecting tax-advantaged retirement investing. It goes without saying that the less generous the tax benefits associated with workplace retirement savings are, the fewer the number of people who will be attracted into the system in the first place. Sure, there are analyses that show that after-tax retirement investing can still be very powerful for long-term wealth generation, but just as important are the optics and the message being sent by legislators.

“If the government weakens tax incentives to save, I am confident that fewer people would save, it’s that simple. Everyone in this room should be on the phone with their Senator and Congressperson telling them to leave retirement alone, regularly,” Reynolds concluded. “We need to make it clear how our industry works and that our savings are enjoying tax deferrals, not credits. I can tell you right now that tax-advantaged savings are being discussed as a source of revenue. We’ve all heard of ‘Rothification’ … I believe this is a real threat. It discourages younger people from participating and lowers how much they contribute. We must be very active.” 

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