Fiduciary Confusion: What to Tell a 401k Plan Sponsor

Back to basics is the best route

It's one way to instill confidence in what you offer.It's one way to instill confidence in what you offer.

President Trump signed a memorandum On February 3, 2017 asking the Department of Labor to review the new 401k fiduciary rule that applies to retirement accounts. On February 9, the Department of Labor filed documents that will likely result in a six-month delay of the scheduled April implementation of the rule.

Many comments have been made about the impact of a delay to the rule. And of course, debate has once again been revived on the value of the rule overall. Most important, though, is what this means for a 401k plan sponsor and its participants.

What should 401k plan sponsors do?

It’s obvious, but worth repeating. Regardless of whether the 401k fiduciary rule is implemented as written or completely discarded, the most important thing 401k plan-sponsor clients should do is determine whether the investment advisors they are working with are a true fiduciary to their 401k plan.

Sponsors should know that advisors who work for insurance companies and brokerage firms are not required to be fiduciaries when providing advice to clients. Investment advisors who work for Registered Investment Advisory (RIA) firms always have been legally required to be fiduciaries to the 401k plans they work with.

Plan sponsors should compel their investment advisors to respond in writing (and not accept a verbal “yes”) to the question about whether to not they are fiduciaries. They also should ask about limitations that are attached to any fiduciary representation.

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

Brokerage firm and insurance company advisors work for their firms first and their clients second. Investment advisors that work for RIAs are required to put their client’s interests first because they act as fiduciaries. What it 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.

The Consumer Federation of America recently reported that most brokerage firms and insurance companies portray their employees as trusted advisors 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?

Brokerage firms, insurance companies still fighting new rules

Money effectively outlined the conflict of interest that advisors working for brokerage firms and insurance companies have, and how much it costs the average investor. As a 401k plan sponsor, it should be a goal to source investment advice for 401k plans from advisors who are objective and required to take into account participant best interests first. These new fiduciary rules are a win for 401k plan sponsors because they force brokerage firm and insurance company advisors to act more like fiduciaries.

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

Plan sponsors should put their 401k investment advisory business out to bid, and include advisors who work for RIAs. If the rules are implemented as written, there will still be exceptions that allow advisors that wok 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 advisor from a RIA.

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

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to 401(k) plan sponsors. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at:

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