The U.S. Department of Labor has divulged few details on how it will expand the definition of fiduciary in its re-proposed rule, expected to be issued this summer. Specifically, advisors want to know how fiduciary duties would relate to 401(k) management. But even as they wait, more broker-dealers and registered investment advisors are gearing up to capture a bigger piece of the fast-growing 401(k) market, no matter how the chips fall.
Morgan Stanley is growing its network of certified in-house retirement specialists, called corporate retirement directors, who can serve as fiduciaries for advisors’ clients who sponsor plans. Kevin Chisholm, an associate director with Boston-based global research firm Cerulli Associates, says he has heard a lot of firms talking about such programs. The advisors who partner with fiduciaries for assistance, meanwhile, can stay involved with the retirement plans by serving as relationship managers and providing education, he says.
B-Ds have a big incentive to get onboard with a stricter regulatory environment. Wirehouses accounted for 37.7% of advisor-sold defined contribution plan assets in 2011, followed by regional B-Ds (15.4%), independent B-Ds (15.1%) and RIAs (11.2%), according to multi-sourced data included in the Cerulli report, titled “U.S. Retirement Markets 2012: Market Sizing, Projections, and Segmentation of Public and Private DB and DC.”
In March, LPL Financial Retirement Partners launched an elite program to support advisors who focus on the retirement plan market for corporations. Initially, the group will have 87 advisors who provide services for about 4,000 retirement plans with approximately $40 billion in assets. The giant independent brokerage firm is dedicating about 60 employees to the unit. But LPL is expected to expand its already substantial presence in the market, in which more than 1,000 of its advisors provide advice to more than 20,000 plans.
RIAs, which have operated under a fiduciary standard for 50 years, are working to expand their penetration of this market by stressing their fiduciary expertise and building their brands. They have also begun to use specialists to manage larger 401(k) plans and assist their advisors who dabble in this space.
Every channel is eager to see whether the new rule will require that people or firms are defined as fiduciaries if they help plan participants roll over their assets. For now, firms are taking caution not to solicit rollover business from their clients’ plan participants, which is prohibited.
Rehmann Financial, the wealth management arm of Michigan-based Rehmann Group LLC, requires participants who roll over their assets with the firm to sign disclosures acknowledging they were not solicited and they understand that the IRA and 401(k) relationships are totally separate.
Rehmann is picking up 5% to 10% in rollover assets from the amount its clients distribute in a given year to their plan participants who retire or terminate employment. It might pursue rollovers more actively if the Labor Department provides clearer guidance, says Gerald Wernette, a principal with Rehmann Financial and director of its retirement plan consulting group.
Rehmann advises approximately 350 retirement plans with $2.3 billion of assets. It also serves as a third-party administrator for about 1,100 plans. Its Level 1 advisors, those with limited retirement plan business or experience, must bring all this business to Wernette’s group except for SEP and SIMPLE plans. The firm’s Level 2 advisors, who have experience serving a greater number of retirement plans and who are encouraged to hold professional retirement plan credentials, are permitted to work in the space but are encouraged to seek coaching and assistance from the core retirement team for plans exceeding $25 million in assets.
Wernette wonders how far the Labor Department’s new definition of a fiduciary advisor will stretch, or if the DOL will address the other roles or functions firms can perform for plan sponsors. Rehmann, for example, also performs accounting, consulting and TPA services for many of its clients who sponsor retirement plans. “I don’t think it will be an issue, but we are paying attention,” he says.