Sophie’s choice was probably easier. Cerulli Associates believes the DOL’s fiduciary rule will force advisors to choose between defined contribution and traditional wealth management business.
If (and it’s a big “if”) the applicability date of April 2017 for the rule’s implementation is unchanged by the incoming Trump administration, all advisors who serve the retirement market will become ERISA fiduciaries, the Boston-based research and consulting mainstay observes.
“Advisors accustomed to parlaying defined contribution plan assets into traditional wealth management relationships via IRA rollovers face new obstacles,” Dan Cook, associate analyst at Cerulli, said in a statement. “To justify that an IRA rollover is in the best interest of a defined contribution plan participant, advisors will face additional compliance and operational work.”
Advisors and their broker-dealers are forced to evaluate whether it is worth the additional time, effort, and fiduciary liability to continue pursuing rollover assets.
“Cerulli asserts that the hurdles that the DOL Conflict of Interest Rule creates will force another round of ‘in or out’ for the population of advisors operating in the employer-sponsored retirement plan market,” added Jessica Sclafani, associate director. “Some advisors will be mandated by their B/D or wirehouse to choose between DC plan business and traditional wealth management rather than operate in both channels.”
Retirement specialist advisors (or 401k specialists) who generate a majority of their revenue from 401k retirement plans, are best positioned because they are well versed in trends impacting the retirement market and mostly accustomed to acting in a fiduciary capacity for DC plan sponsors, the firm argued.
Some advisors without retirement plan expertise will find the regulatory environment prohibitive and exit this market. However, the remaining advisor population will have to build specialized knowledge of this market if they intend to continue servicing DC plans, it said.
This need for specialization creates opportunity for defined contribution investment-only (DCIO) asset managers and outsourced fiduciary providers, such as Mesriow and Morningstar, to support advisors who are interested in growing their DC plan business, but lack the expertise.
“Cerulli expects that advisors will increasingly turn to fiduciary outsourcing providers either because their BDs prohibit them from acting in a fiduciary capacity, or because they lack the appetite or ability to take on the greater fiduciary responsibility currently set forth under the new regulation,” Cook concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
