Outsourced Fiduciary Services on the Rise After DOL Rule
The pending DOL conflict of interest rule set to take effect April 10, 2017 is creating new business opportunities for service providers to fill what they see as a potential void by creating new fiduciary services. By broadening the definition of fiduciary, almost all advisors working on a 401k or 403b plan, and most for IRAs, will either be considered a fiduciary, work under an exemption or be part of outsourced fiduciary services.
But plan sponsors should be careful not just to determine which third party service is right for them but whether it might be better to hire an advisor that is able to serve as a full-fledged fiduciary rather than work with one unwilling or unable because their broker dealer will not allow it.
There are three basic types of fiduciary services which include:
- Investments – 3(21) where the fiduciary suggests funds but does make the final decision.
- Investments – 3(38) where decision making is delegated to the outsourced fiduciary.
- Administration – 3(16) where the fiduciary controls administrative duties and decisions.
MassMutual is offering 3(21) and 3(38) services through their partner Envestnet while Mercer is providing 3(38) and 3(16) services. Morningstar’s fiduciary service helps plan sponsors select record keepers and investment line-ups while LPL has a fiduciary solution for its own advisors working with smaller retirement plans.
The Potential Problem with Outsourced Fiduciary Services
All of which sounds good and can offer a bit of protection against lawsuits but they will not replace an experienced and knowledgeable plan advisor working as a fiduciary who might also suggest fiduciary insurance. The issue with robo advisors, robo record keepers and now robo fiduciaries is that some people still may want to talk to a live person. Most professionals running their company’s retirement plan have many other duties and rely on an industry expert like an advisor to help. For these people, a robo solution will be cold comfort.
So if your advisor is forced to delegate their fiduciary duties to a third party, it might be prudent to ask why and to investigate whether they are not able or capable to provide those services themselves. Because only when the tide turns do you know who is swimming naked and the DOL rule is a tide turn with hundreds of thousands of advisors working on 401k and 403b totally unqualified, never mind act as a fiduciary.
