Non-Fiduciary Education Under Final DOL Rule

The Department of Labor’s (DOL) final fiduciary rule includes a number of highly anticipated changes from the version proposed in 2015, including greater flexibility for providing education materials to retirement plan sponsors in a non-fiduciary manner.

Craig Howell, vice president of business development at Ubiquity Retirement + Savings, a recordkeeper specializing in the micro-plan market, tells PLANADVISER this was a key change in the fiduciary rule language, one which he feels “has a lot of bearing on the mid- and long-term future of our industry.”

By way of background, the final fiduciary rule published last week includes a fairly lengthy list of examples of communication that “would not rise to the level of a recommendation and thus would not be considered advice.” DOL specifies that “education is not included in the definition of retirement investment advice,” so advisers and plan sponsors can continue to provide general education on retirement saving without triggering fiduciary duties. The final rule also expressly provides that investment advice “does not include communications that a reasonable person would not view as an investment recommendation, including general circulation newsletters, television, radio, and public media talk show commentary, remarks in widely attended speeches and conferences, research reports prepared for general circulation, general marketing materials, and general market data.”

Taking all this together, Howell believes “advisers’ value propositions are going to continue to migrate towards education and financial wellness, moving away, as a result of greater fiduciary and litigation concerns, from sales- and commission-oriented services.” He points to his firm’s own business model as proof.

“Here at Ubiquity + Savings, we don’t provide investment advice directly, instead focusing on administration, technology and recordkeeping,” Howell explains. “But investments are obviously integral to our products and services, so what we do is partner with a series of third parties, including Morningstar, to take on fiduciary discretion over clients’ investment lineups, either as a 3(21) or 3(38) fiduciary. Through our connection, the employer is able to hire the fiduciary directly, at a very affordable price, and all the documentation is delivered automatically and digitally.”

NEXT: Role of the adviser

As a result, with Ubiquity + Savings doing the recordkeeping and Morningstar managing the investment lineup—with both leveraging automation to the fullest extent possible to reduce costs—this “frees up the partnering adviser to focus on what he or she does best, and that is delivering one-on-one investment education and financial wellness training to plan participants.”

Critically, under the final fiduciary rule as it has been interpreted so far, it seems an adviser in this position will actually be able to stay out of the fiduciary relationship entirely if he so chooses, Howell explains. “Even if they are compensated directly from plan assets, they can still, it seems, refrain from taking on the fiduciary role so long as they are careful about the types of education they are giving,” he explains.

“Being steeped in this part of the industry, I have something of a biased point of view, but we feel great about the possibilities of this business model moving forward under the final fiduciary rule,” Howell adds. “This is the model that will work for advisers who truly think of themselves as advisers, not as salesmen or brokers. That is the real division that is going to open up and that DOL wants to see being made clearer—the division between true retirement advisers and your more sales-oriented brokers.”

Given the potential complexity of this arrangement and the multiple service providers all needing to be compensated, Howell adds that “some advisers may predict it will be prohibitively expensive to operate this way, but our low, flat fees show otherwise. Leveraging technology and automation throughout our entire process allows us to deliver some of the lowest fees in the industry to the micro-plan market, and we plan to continue to do this under the new rule.”

For those non-fiduciary advisers who choose not to take this route immediately, opting instead to rely on the Best Interest Contract (BIC) exemption to continue to collect commissions and other sales-related fees, Howell expects many will come to dislike the BIC. 

“It seems that, under the final rule, advisers will still be able to [receive] commissions, but they will have to start papering potentially very large numbers of BICs, which will be a hassle and will put the firms at something of a disadvantage, especially as plan sponsors come to understand the new fiduciary landscape,” Howell concludes. “I expect a slow migration away from commissions and towards more  education-based work for this reason.”