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How Fees, Fiduciary, Technology Will Impact 401ks: 2017 Excel 401k

'Every advisor should be operating with prudence and loyalty'

The Excel 401k Conference in Las Vegas kicked off on Monday morning with an opening session that contained key advice and predictions on the future of the 401k marketplace from a panel of experts.

Led by Pete Swisher, senior vice president of Pentegra Retirement Services, the talk touched on a changing industry; one in which banks once held 90 percent of the defined benefit marketplace and then lost it all to the advisory space.

It was a time where oversight and lack of investment policy statements were the norm, Swisher said.

Fast forward to today’s industry, where Americans have $24 trillion saved for retirement, a figure which is one-and-half times GDP and more than every country on earth, combined.

Yet, said Swisher, we still have a large coverage gap with many participants having access to retirement plans but not participating.

Emphasizing the drain of ongoing administrative tasks, Jim O’Shaughnessy, AIF, Managing Partner of Sheridan Road Financial talked about his firm’s latest headache: a full-scale review by the Department of Labor (DOL) that began two-plus years ago.

“We received a 10-page letter and after I read the first paragraph, I thought I was going to jail,” he (now) laughed.

O’Shaughnessy noted that as part of the process, some practices he had taken for granted and other things he thought were best practices, had to be completely rethought.

He estimated that his firm has spent 500-man hours and significant expense in the DOL review that has included educating the agency on the firm’s structure and operations.

“We were backed into a corner and have had to punch our way out to help them understand the distinction between efficiency and transparency,” he added.

The DOL’s focus is on what services are offered and how the firm is compensated, said O’Shaughnessy, and when they act in a fiduciary or non-fiduciary capacity. But’s it’s still a learning process for the regulator.

“The DOL has the best of intentions at heart, but they don’t completely understand us.”

He advised the crowd to treat a DOL visit just like the IRS or SEC. Be prepared to show every aspect of your process and documentation because O’Shaughnessy said, “they wanted all plan documents, notes, meeting minutes and more, going back five years, within 30 days.”

Cue a noticeable collective squirming from the audience.

As advisors know, the Fiduciary Rule is here, kinda, said Thomas Clark of the The Wagner Law Group (and formerly part of uber-litigator Jerry Schlichter’s shop).

The rule is “on the books” noted Clark and as a result, the definition of investment advice has been expanded.

But more time-consuming elements, such as the conflict of interest exemption or BIC, are delayed to the end of the year—at least. But advisors shouldn’t wait around to see what happens.

“Every advisor should be operating under the “transition” BIC and behaving with prudence and loyalty,” cautioned Clark.

The DOL has not confirmed whether a recently proposed 18-month delay for the rule will go into effect but Clark said that pressure from consumer protection groups will have the agency hard-pressed to come up with reasons to keep moving the timeline.

One aspect is clear said Clark: “Expect the fight (over the Fiduciary Rule) to go on for two to three more years.”

Final thoughts and predictions for the future included Swisher saying there is an “appetite” to close the retirement gap and get more people saving. He said there are opportunities with small businesses, especially in light of payroll direct IRAs and that generalist advisors will be the “mechanism for getting this done.”

He also cited fiduciary outsourcing as picking up steam because “clients want out of the middle we’ve put them in.”

Clark sees further consolidation of platforms and robo solutions coming down the road. He added that the DOL will publish easier to follow exemptions to help advisors but regardless, he predicted that there will be more lawsuits about the process of advising, and less around the self-dealing aspects that have dominated headlines.

O’Shaughnessy ended with observations on wealth management fees (“they will be halved, just like they have been on the institutional side”); record keepers, who will do more due diligence and not just “work with any advisor;” and finally, the role of FinTech.

“Advisors need to innovate or die because the change in technology is relentless.”

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