Broker/dealers and financial advisors can also assist their clients with advice regarding plan design.

The question remains, however, whether the compensation is reasonable. As with so many questions under ERISA, there is no clear answer. Sponsors (and potentially even the DOL) will need to determine if the value provided to the retirement plan is "reasonable" in light of  compensation received. 

Interestingly, another set of DOL regulations may present an opportunity for broker/dealers and financial advisors. As you know, the DOL recently proposed changes to the definition of "fiduciary" for purposes of providing investment advice. The proposed regulations would change the current narrow definition and replace it with a broader definition, under which many financial advisors in the retirement plan market would be considered fiduciaries.

Although the DOL recently withdrew the regulations for reconsideration, it's likely that the final regulations, if and when they are issued, will follow a similar approach.

Briefly, under the proposed rules, a "fiduciary" will include anyone who provides investment advice for a fee to a retirement plan fiduciary or participant pursuant to an understanding that such advice may be considered in connection with the investments in the retirement plan. This rule, if finalized, could potentially make an advisor a fiduciary for providing a single piece of advice, whether or not it is followed by the recipient. In my next post, I will go into more detail on these regulations and their potential impact.

Understandably, some in the broker/dealer community have recommended narrowing the guidelines. Although it's unclear what the final result will be, it's entirely possible that the final regulations will be far less inclusive than the proposal.

That said, financial advisors may find that being a fiduciary investment advisor is a possible solution to the "reasonable compensation" issue. Many financial advisors are already providing the type of advice that would, if the proposed regulations were finalized, make them plan fiduciaries. The existing business model would not need to be changed in any significant way.  

Obviously, this is an oversimplification of the issue, and the increase in potential liability that a financial advisor would be taking on could be exponential if the new proposed rules were to take effect. Financial advisors who don't want to be deemed "fiduciaries" would need to successfully operate in the retirement plan market without providing "fiduciary" types of services.

The provision of fiduciary investment advisory services would likely be sufficient to justify most existing levels of compensation. With the increased scrutiny on fees and services that will surely follow the effective date of the disclosure regulations, those financial advisors and broker/dealers willing to act as a fiduciary may be well positioned, both in the competitive marketplace as well as in regulatory compliance.

One caveat is that once a financial advisor takes on a fiduciary role, the advisor will need to review the manner in which he or she is compensated. The manner in which a fiduciary may be compensated for providing services to a plan is closely regulated by ERISA. For example, if an investment advisor causes a plan to invest in a certain investment that results in additional compensation to the advisor, he or she may be found to have engaged in a prohibited transaction. As such, some investment advisors and broker/dealers who decide to take on a fiduciary role may want to consider changing to a flat fee compensation structure. As always, it is important to discuss these matters with your attorney before making any changes so that you can make a fully informed decision.