For 401(k) advisors, no more ‘accidental fiduciaries’

Broker-dealers who service 401(k) plans dodged a bullet when a federal court vacated the Labor Department’s fiduciary rule last spring.

Or did they?

The contentious rule, which the Obama administration spent more than five years promulgating, would have made fiduciaries of any broker-dealer or insurance agent advising the investment committees of employer-sponsored retirement plans with less than $50 million in assets.

When the rule was finalized in April of 2017, broker-dealers with defined contribution business typically made plans to consolidate books of business with qualified 3(16) fiduciary advisors within organizations, or require brokers to become certified as fiduciaries to comply with the rule, said Matt Sommer, Vice President, Retirement Strategy Group at Janus Henderson Investors.

“On the 401(k) side, broker-dealers were moving to the plan specialist model in preparation for the rule,” Sommer told BenefitsPRO.

Sommer describes the brokers or insurance agents that served plans with less than $50 million in assets prior to the rule as “accidental fiduciaries”—they played the role of fiduciaries without being beholden to a best interest standard.

But now that the rule is off the books, the preparations broker-dealers and insurance companies made can be expected the stay in place, says Sommer.

“The horse is out of the barn,” he said. “My experience has been once a plan sponsor truly understands what it means to be a fiduciary, they want the person they have hired to be in the same boat as they are.”

Because of the long and well-publicized debate surrounding Labor’s rule, plan sponsors—even smaller ones—have become more informed consumers, Sommer thinks.

More and more, they are demanding a fiduciary level of care. “They are asking their plan advisor—where is your fiduciary contract,” added Sommer.

Last year, Denver-based Janus Capital Group merged with U.K.-based Henderson Group. Combined assets under management at the time were $331 billion. The firm has no defined contribution recordkeeping unit or internal advisory channel. Its funds are available on 200 recordkeeping platforms.

ERISA attorneys share Sommer’s sentiments on the future for brokers and insurance agents that serve 401(k) plans after the fall of the fiduciary rule.

While the death of the rule has left larger questions for the treatment of 401(k) rollovers, those providers making recommendations to plans on an ongoing basis will satisfy ERISA’s definition of a fiduciary, said Fred Reish, a partner at Drinker Biddle, in an interview with Think Advisor, BenefitsPRO’s sister publication.

Reish said he expects the Labor Department to enforce a stricter interpretation of how ERISA treats brokers to 401(k) plans going forward.