One of the major repercussions of the DOL’s conflict of interest rule set to become effective April 10, 2017 is that more plan advisors will be considered co-fiduciaries under the broadened definition. Some advisors, however, may not want to act as an ERISA fiduciary because of the liability while others may not be able to because their licensing origination will not allow it. As a result, some defined contribution (DC) plans like 401ks and 403b may be abandoned leaving a company without an advisor and some may turn to Morningstar’s new service called Plan Advantage.
Marketed initially to broker dealers not willing to let some of their registered reps act as an ERISA fiduciary, the Morningstar service will select the investments available to DC plan participants acting as what is known as a 3(38) fiduciary where choice is delegated as compared to a 3(21) where the co-fiduciary makes suggestions but the plan sponsor decides. In addition, the Morningstar Plan Advantagee will suggest record keepers based on the company profile who will supply fees and services. Ongoing investment monitoring is included with updated fees coming directly from the record keeper. The service is set to launch December 2016 – fees were not disclosed.
There is no call center planned for companies that have questions and only a select group of record keepers will be available with the list not disclosed yet. Morningstar provides 3(38) and 3(21) services to many well-known record keepers so the choices should be robust although a plan will not be able to use the service if their current provider is not part of it.
So will a plan sponsors even need an advisor if they use Morningstar’s service? That depends. If an advisor is what is known as a “Triple F” advisor focused exclusively on fees, funds and fiduciary, maybe not. But more experienced plan advisors also help with plan design and employee education as well as coordinating with other vendors like TPAs and record keepers. With no call center, plans that want or need personal help and may be uncomfortable relying on record keepers to let them know if fees are reasonable would probably need an advisor.
