On February 3, President Trump signed a memorandum asking the Department of Labor to review the new fiduciary rules that apply to retirement accounts. The next week, on February 9, the DOL filed documents that will likely result in a six-month delay of the scheduled April implementation of the rules. There have been a lot of comments circulated on the impact of a delay or any changes. And of course, debate has once again been revived on the value of these new rules. Most important, though, is what this means for 401(k) plan and participants.

Regardless of whether the fiduciary rules are implemented as written or completely discarded, the most important thing 401(k) plan sponsors should do is determine whether the investment adviser they are working with is signed on as a fiduciary to their 401(k) plan. Advisers who work for insurance companies and brokerage firms are not required to be fiduciaries when providing advice to clients. Investment advisers who work for Registered Investment Advisory (RIA) firms always have been legally required to be fiduciaries to the 401(k) plans they work with.

[Image credit: Bloomberg]
[Image credit: Bloomberg]

Plan sponsors should compel their investment advisers to respond in writing (don’t accept a verbal “yes”) to the question about whether they are a fiduciary. They also should ask what limitations are attached to any fiduciary representation.

Why it’s important to know if your adviser is a fiduciary

Brokerage firm and insurance company advisors work for their firms first and their clients second. Investment advisers working for RIAs, because they act as fiduciaries, are required to put their client’s interests first. What this means is that brokerage firm and insurance company advisors are legally able to suggest investment options that pay them and their firms more money even when cheaper alternatives exist.

As reported recently by the Consumer Federation of America, most brokerage firms and insurance companies portray their employees as trusted advisers when marketing to the public but as salespeople when opposing the new fiduciary rules. So, are these firms lying to their clients or lying when they oppose the new rules?

And, as a 401(k) plan sponsor, it should be your goal to source investment advice for your 401(k) plan from advisers who are objective and required to take into account your best interests first. These new fiduciary rules are a win for 401(k) plan sponsors because they force brokerage firm and insurance company advisers to act more like fiduciaries.

What if I am working with a brokerage firm or insurance company adviser?

Take your 401(k) investment advisory business out to bid and include advisers who work for RIAs. If the rules are implemented as written, there will still be exceptions that allow advisers working for brokerage firms and insurance companies to provide conflicted advice (i.e.: advice that is not in the client’s best interest). If the new rules are completely discarded, the only way to obtain objective investment advice is to work with an adviser from a RIA.

Plan sponsors, you can ignore all of the chatter surrounding this issue by hiring an investment adviser who signs on, without exceptions, to your 401(k) plan as a fiduciary.


Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or bob@lawtonrpc.com.

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Robert C. Lawton

Robert C. Lawton

Robert C. Lawton, AIF, CRPS is president of Lawton Retirement Plan Consultants, LLC, an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities.