In a recently released survey by TD Ameritrade with employers sponsoring a 401(k) plan, RIAs (registered investment advisor) seemed to provide more support to plan sponsors. Those plan sponsors using an RIA are more likely to offer one on one education to their employees, receive fiduciary support as well as education for themselves.
Other highlights of the telephone survey sponsored by TD Ameritrade with 242 employers include:
- RIAs are more likely to offer education and enrollment support of employees
- More fiduciary support is offered by RIAs
- Plan design support is more likely with an RIA
Let’s dive deeper.
The most popular alternative to an RIA is a registered representative working through a traditional broker dealer like Merrill Lynch or LPL. RIAs are licensed directly through the SEC while broker dealers work through FINRA. RIAs are usually paid as a percentage of assets under management while registered reps are generally paid through commissions which are included in the cost of the fund or investment. Registered reps work under a suitability standard whereas RIAs have a fiduciary duty to keep their client’s best interest first. Most experienced plan advisors are hybrids able to work both as an RIA and registered rep with more and more working as a fee based advisor on retirement plans.
But don’t confuse investment fiduciaries with ERISA fiduciaries. An RIA can choose not to be a plan fiduciary whereas a commissioned rep may act as one, so just because a plan hires an RIA does not mean that they are hiring an ERISA fiduciary. If the pending DOL fiduciary rules is passed, which is likely, almost all advisors will be acting as a fiduciary under the broader definition.
So the question is not whether a plan should hire an RIA but whether a plan should hire an advisor that acts as a co-fiduciary. There are few reasons not to hire a co-fiduciary and a couple of benefits to hiring one including shared liability and level compensation which means the advisor gets paid the same regardless of the investment selected.
But before we get carried away with TD Ameritrade’s research on the usage of RIAs for retirement plans, let’s remember that RIAs, not registered reps, are TD’s main clients. Larger companies which command and receive better service are more likely to hire an RIA. Ultimately it’s more about the quality of the advisor v. whether they are an RIA – plans hire people who may or may not choose to be an RIA.