The DoL Fiduciary Rule: A State of Confusion

A month ago, on April 4, 2017, less than a week prior to the scheduled implementation date for the first phase of Department of Labor (DoL) Fiduciary Rule to go into effect, the DoL filed to delay the regulation by 60 days.  Therefore, as of now, the DoL Fiduciary Rule is scheduled to go into effect June 9, 2017. The DoL has also said that all requirements except for the Impartial Conduct Standards will be deferred until January 1, 2018.

Simultaneously, the DoL is undertaking a review of the rule to determine whether or not the regulation as it stands now could hurt Americans ability to get retirement advice. This review is expected to be completed by January 1, 2018. 

The chain of events has generated uncertainty for financial institutions who provide advice to retirement plans, plan sponsors, fiduciaries, beneficiaries, individual retirement accounts (IRAs), and IRA owners.  For the past year, these financial institutions, which include firms of all sizes, have been forced to rethink their technology that supports their compliance efforts, including but not limited to how advisors justify recommendations and document those recommendations. 

This effort has not gone to waste.  The compliance tools and training packages that have come out of this effort to quickly comply with the DoL Fiduciary Rule will have lasting impact and use cases for a much larger audience, including anyone in the field of delivering investment advice or investment products, regardless of what happens with the DoL Fiduciary Rule. 

In my latest report, Regulation as an Impetus for Change: Technology Solutions for Fiduciary Responsibility, I study products that make compliance with the DoL Fiduciary Rule simpler and more efficient.  Vendors covered in this report include: Broadridge, Fi360, InvestCloud, Morningstar and SEI .  Solutions include product shelf assessment services, refined education and training programs and dashboards, and products that help advisors prove that they are working in the best interest of their clients.


Singing the 401(k) blues

As if didn’t have enough PR problems already, just published an article slamming the Seattle-based company’s 401(k) plan. It noted that many of Amazon’s lower-paid employees were not participating in the plan, to the extent that the company had to pay back the government upwards of $5 million for the plan to retain its privileged tax status. The article does not explain why lower-paid employees are not participating. It’s fair to assume that many (particularly if they are seasonal employees) lack the income to sock away money for their Golden Years. Others may not be receiving helpful plan information. Or perhaps the reason is more prosaic: Bloomberg ranked Amazon’s 401(k) plan last among the top 50 public companies. Wow. One wouldn’t expect a billion dollar global behemoth to be called on the carpet for its lousy 401(k) plan. Traditionally, it is employees at the smallest firms (those with less than 100 employees) that have gotten the short end of the retirement stick. These plan participants tend to pay twice as much in fees as much as their counterparts at larger firms; they lack access to robust investment products; and they receive less investor education and support. Needless to say, these shortfalls tend to translate into negative outcomes. This is something of a national scandal, particularly given the adulation to which Americans accord small business. Indeed, the Federal government, fearing a doomsday scenario in which older Americans start outliving their savings, has become increasingly active in trying to right the retirement ship. At the same time, a new crop of 401(k) plan providers is offering smaller companies access to low cost, digitally focused platforms, as I discuss in a recent report. The reach of these upstart providers in a highly fragmented market is limited, however, and the response of the largest plan providers to the needs of small business has underwhelmed. I have to wonder, given the emotions around retirement and the centrality of the 401(k) plan to the lifetime earnings picture, how long it will be before Bernie Sanders takes on this topic.

The Small Company Retirement Plan Opportunity

In my latest report, Big Rewards Come in Tiny Packages: Why Small Retirement Plans Offer a Huge Opportunity for Plan Providers, Sponsors, and Advisors, I explore a rich but underserved corner of the defined contributions business, the market for small company retirement plans. Defined here as plans with less than 500 participants, the small plan market is a unique laboratory for exploring the contradictions and inefficiencies that characterize the 401(k) business in general. Small company 401(k) plans, where they exist at all, are expensive, burdensome to operate, and skewed toward cost-inefficient investments, even more so than their large plan counterparts. Disruption is in the air, however, and the opportunity for new plan providers offering low-cost, technology-driven platforms is great. While in the broader retail investments business, innovation has been tech-driven, in the DC space, regulation (and its cousin, litigation) has been the engine of change. The industry is on the march to a uniform fiduciary standard, and it is no coincidence that so many of the plan providers mentioned in this report, firms such as ForUsAll and Employee Fiduciary, have emerged within the last two years.