Fiduciary rule delay gives plan sponsors more time to ask crucial questions
While the Department of Labor’s 60-day delay in the implementation date of the fiduciary rule must be a sigh of relief to many in the industry groups — particularly firms woefully unprepared to shift their businesses to the changing environment — plan sponsors, employees and advisers should only take the delay in stride.
The delay in the rule won’t change the desire of plan sponsors and their employees to be confident that their financial adviser is exclusively acting in their best interest at all times, no matter what the delay in implementation may yield as far as final regulations are concerned. Truly, it is business as usual.
The build up to the fiduciary rule has educated plan sponsors and participants on the differences in advisers and their potential conflicts.
The delay does mean that plan sponsors need to ask more questions and conduct more due diligence on those advising their plans. Understand who is being paid, how, and how much. Is the consultant sitting with your employees paid more if contributions are allocated to a certain investment in the plan? Are they acting in a fiduciary capacity? Is their compensation aligned with the successful outcome of the plan?
Acknowledging the agenda
Plan sponsors must consider that every vendor, consultant and adviser to their plan has an agenda. They should err on the side of cynically viewing that agenda as self-serving. Whenever receiving advice, the question should be asked of the adviser, “What do you have to gain from this advice?”
The answer must align with the successful outcomes of the plan, say, by increasing success statistics so the adviser can retain their client. Plan sponsors should clarify objectives of advice and qualify what success means (for example, by increasing participation by 10% over the next year). Understanding the objectives of advice and the structure of consultants’ compensation can help plan sponsors vet the advice they receive.
Regardless of delays or the final structure of the fiduciary rule, the rule has educated plan sponsors on the differences in advisers, and they want a fiduciary relationship. Truly, this means business as usual. The onus for vetting advice remains, and will always remain, on the shoulders of plan sponsors. No regulation will change that responsibility.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does adviser assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.