The finalization of the Department of Labor’s recent fiduciary ruling has left more than one out of three retirement plan service providers uncertain of their professional status, according to a new industry survey.

The new DOL regulations, announced April 6, will designate anyone providing investment advice for retirement plans as a fiduciary, requiring advisers, planners and wealth managers to place their clients' financial interests ahead of their own. Advisers must also disclose any potential conflicts of interest to plan participants, and failing to do so would expose them, as well as the employers that hire them, to lawsuits and ERISA-violation penalties.

In a recent survey by The Spark Institute, a Washington, D.C.-based think tank whose members serve approximately 85 million participants in 401(k) and other defined contribution plans, 14% of the 117 member firms who responded indicated that they would become a fiduciary for the first time under the new regulations. Another 23% would continue to operate as fiduciaries, while 30% said they planned to continue in a non-fiduciary role. The remaining 34%, however, are uncertain about what direction to take.

“While about half of the members don’t plan to make major strategic business changes, the other half have already decided to fundamentally change their business model, or are considering whether to do so,” says Spark Executive Director Tim Rouse. “This level of change will likely take years to play out fully in the market.”

Parts of ruling not clear

The Spark survey also found that 80% of the respondents are still evaluating the risks and requirements posed by the new regulations, while 60% complain that important elements of the DOL ruling are still not clear. Seventy-five percent said they are watching to see how their peers are interpreting and addressing the new rules, and nearly half indicated that they are seeking guidance from industry organizations.

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"There is no question that there are a number of different business models that will be created out of the regulations. The industry as a whole and advisers … are talking to attorneys to determine how [these regulations] will impact them."

“These responses indicate that the industry is still absorbing this massive new regulation and is inevitably going to rely on strong support from organizations like Spark,” says survey co-author Cynthia Hayes, president of the Cartersville, Ga.-based consultancy Oculus Partners. “Even with all the changes the DOL made to make the regulation more practical, there is still an [enormous] amount of language to study and already providers can see significant change required in practice governance and oversight.”

Most advisers, even those who haven’t been formally acting as fiduciaries, are doing “fiduciary like work,” says Alex Assaley, principal of Bethesda, Md.-based agency AFS 401(K). Nevertheless, he agrees that “There is no question that there are a number of different business models that will be created out of the regulations. The industry as a whole and advisers … are talking to attorneys to determine how [these regulations] will impact them and what their business model will look like.”


Assaley also agrees that advisers will rely heavily on trade groups who are working closely with DOL to get a better grasp of what the ruling means. “There will be continued collaboration between retirement providers, advisers and groups like NAPA,” he says.

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