Sponsors Support Stricter Fiduciary Standards

There are at least three distinct regulatory groups currently examining whether to strengthen fiduciary standards to include more forms of financial advice—especially advice given in the retirement planning context. Besides the Department of Labor (DOL), which has been considering a new fiduciary definition that could add certain individual retirement account (IRA) rollovers and other investment advice to the list of prohibited transactions barred by the Employee Retirement Income Security Act (ERISA), both the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) are weighing fiduciary rule changes of their own (see “An Inside Perspective on Rollover Rulemaking”).

Some of the survey’s key findings are as follows:

• Nearly nine in 10 (89%) plan sponsors say that they would favor rule changes (68% “strongly” and 21% “somewhat”) requiring defined contribution (DC) plan providers to only give advice that is in the best interest of plan participants.

• Nearly as many plan sponsors (88%) favor requiring DC providers to clearly explain to plan participants if the providers’ advice is not obligated to be in the participant’s best interest (59% “strongly” favor this and 29% “somewhat”).

• Despite the large share of plan sponsors who favor requiring DC provider advice to be in the best interest of plan participants, an equally large share (91%) of plan sponsors trust (completely or somewhat) that their DC provider already offers investment advice that is in the best interest of plan participants.

• Over three in four (77%) plan sponsors agree (strongly or somewhat) that it is important for DC plan participants to receive investment advice from an independent adviser who does not make a commission from the plan’s investments. 

Other findings from the survey show sponsors whose DC provider currently offers one-on-one advice to plan participants are less likely than other sponsors to feel fiduciary rules should be strengthened. For example, among sponsors whose provider offers one-on-one advice to participants, approximately four in 10 (42%) “strongly agree” with the idea that advice should be given without any personal financial interest being involved on the part of the adviser. That compares with more than half (52%) for those sponsors whose provider does not offer one-on-one advice, suggesting the important role such advice plays in a sponsor’s perception of the services the plan receives.

In addition, despite the large share of sponsors who acknowledge the importance of independent advice, considerably fewer acknowledge the conflicts that some consider to be inherent in advice offered by DC providers. Specifically, under six in 10 (56%) sponsors agree somewhat or strongly that the advice offered by DC providers to plan participants may be influenced by the money that the provider makes from the plan’s investments.

In order to collect the data presented in this report, AARP contracted with PLANSPONSOR to add a set of survey questions about investment advice to the 2013 edition of the PLANSPONSOR Annual Defined Contribution (DC) Survey. The survey was administered online from late June 2013 through mid-September 2013. The findings are based on the responses of more than 3,000 plan sponsors that offer one or more DC plans, such as a 401(k), 403(b), 457, or other such plan.

An executive summary of the AARP survey findings is available here. The full results are available here.