Vanguard recently conducted a webcast helping plan sponsors understand what changes they can expect as a result of the DOL’s conflict of interest rule (DOL fiduciary rule) and what needs to be done when. As most experts have advised, plan sponsors do not need to do anything immediately with the rule coming into effect April 10, 2017 because the rule affects service providers and advisors more and they are still trying to figure out what to do.
So while the DOL fiduciary rule does not affect plan sponsors directly and how they manage their plan and investment committee as they are already acting as plan fiduciaries, it will greatly affect how they select service providers, especially advisors, more likely to be considered fiduciaries under the new rule, and whether the selection and monitoring of these third party fiduciaries is prudent.
The rule clearly excludes education from the definition of investment advice as well as communication between plan sponsors and their participants. It is intended to cover specific investment recommendations including whether a plan participant should roll their money into an IRA at separation of service, not just the investments recommended.
Rules regarding plans with $50 million or more in assets (aggregate plan and corporate assets considered) are different and less stringent as these entities are considered to be more sophisticated.
One difficult issue is whether communications with call centers would be considered advice. The answer is sometimes, especially if investment recommendations are provided but routine communications as well as popular interactive apps will not be covered under the rule to avoid unnecessary and costly operations.
So while the new DOL fiduciary rule does not impose any additional, specific duties on plan sponsors or require immediate action, it will forever change the relationship with service providers especially advisors, more of whom will be acting as fiduciaries. Which in turn means that the fees paid to advisors, sometimes embedded in investment costs paid by participants called revenue sharing or 12b1 fees, must be even more closely monitored by plan sponsors to determine if they are reasonable and whether the advisor is prudently fulfilling their duties in the best interest of participants. More to come but a good, measured overview by Vanguard.
