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Record Keeper Fiduciary Status Under Microscope in DOL’s FAQ Part II

Record Keeper Fiduciary StatusPart 2 of the DOL’s FAQ about their impending conflict of interest rule clarifies the distinction between education and communications to investors as opposed to advice. It also clarifies which activities would give rise to record keeper fiduciary status. Of particular interest is when a record keepers suggesting an investment lineup becomes a fiduciary under the new rule.

Automatically rolling accounts of terminated employees with less than $5,000 would not be considered a fiduciary act by a DC plan sponsors or their vendors nor would encouraging a participant to increase their deferral rates. Neither would:

  • Information about investment without a recommendation
  • General financial information
  • Hypothetical asset allocation models
  • Interactive investment education including worksheets, questionnaires and online tools

On the other hand, insurance agents that recommend distributions from a DC plan be placed into insurance products would constitute advise as would the recommendation of a third party that provides advice on IRA accounts.

General practice among record keepers in the small plan market is to suggest a menu of investments to an advisor and their plan sponsor client. The DOL’s FAQ states that suggesting all investments that meet a plan’s investment policy statement (IPS) would not constitute advice unless the record keeper limits the options.

The DOL rule primarily attempts to limit commissions paid to advisors or at least restrict their use to avoid conflicts. Most record keepers receive revenue sharing akin to commissions which usually vary depending on the arrangement with the money manager. Claiming no power in the ultimate selection of the plan’s investment lineup, record keepers had sought to avoid fiduciary liability. But the DOL FAQ clearly states that just suggesting a lineup could make record keepers a fiduciary if they limit their suggestions beyond the outline of the plan’s IPS potentially changing the relationship and engagement with that provider.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein

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