4 Ways to Make Sense of 401k Fiduciary Rule Confusion Now

Remember several important best practices

What happens from here?What happens from here?

The Department of Labor fiduciary regulations—and the media and political swirl over the past several months—has us all completely exhausted. An infinite number of hours have been spent wondering what’s coming next, or if anything is coming at all.

Whatever the eventual outcome, the public is more aware of the concept of fiduciary responsibility and potential conflicts-of-interest than ever before. Regardless of the changes that may or may not be implemented, this increased consumer awareness—particularly around advisor compensation—is causing an industry shift, particularly from commission-based to fee-based models.

Though the next few months certainly hold uncertainty, it’s important to remember several important best practices when reviewing your own business model, or choosing a service provider with whom to partner. These are the practices that should be the bedrock of your value proposition, and your adherence to them should be strongly communicated to clients and prospects.

  • If you haven’t already, formally commit to a level-fee compensation model. Any revenue sharing received from mutual fund companies should be passed back to the plan and its participants to offset plan service fees.
  • All plan sponsors need access to professional ERISA 3(21) investment advisory or ERISA 3(38) investment management services. However, providing these services should not be a stressful act that comes with a fear of litigation. You could choose to do this yourself and seek to gain the competencies and credentials to provide these services. Alternatively, you can partner with a service provider who can offer an additional layer of investment fiduciary expertise as a complement to your service offering.
  • Avoid working with plan providers who have many proprietary funds and requirements to use them. These funds are likely in the best interests of someone other than your client and their employees.
  • When selecting a retirement plan lineup, always strive to use mutual funds that are available within the least expensive share classes. Expensive share classes are likely to erode the potential returns on these funds for retirement plan participants over the long term.

We don’t know what the future holds for the fiduciary rule. The DOL may decide to keep the rule in place as originally proposed, modify it or repeal it entirely.

However, what we do know is that employers and employees value partners who are looking out for their interest, charge a fair price and strive to do right by them—regardless of whether the rules require them to do so or not.

Chris Dugan is the director of retirement plan communications at The Standard, with over 20 years of experience in the defined contribution industry. The Standard is a nationwide retirement plan record-keeper. Please call 844.239.3561 for more information.

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