Wernette will be a lecturer in a program for plan sponsors being rolled out this year by TRAU, the Retirement Advisor University at UCLA’s Anderson School of Management. He will discuss how to measure participants’ success, their retirement readiness, the plans’ design, expense management and fund oversight. “You can have great funds and low expenses,” he says, “but if your participants aren’t involved or make bad investment decisions, you’re a lousy plan.”
Smaller, regional B-Ds are struggling the most under regulatory pressures. Rehmann will position itself to take advantage of their fallout, says Wernette, but he expects the competition to resemble “a swarm of bees.” Now that more advisors are searching Form 5500 filings and turning to FreeERISA for plan information, “it’s real hard to be the first guy in,” he says.
To help make it easier for other independent RIAs to be successful in the 401(k) space, one RIA firm decided to launch a program that serves as a fiduciary to 401(k) plans and provides managed portfolios and one-on-one advice to plan participants.
The result was Advisors Access. It was formed in 2006 by Capital Directions LLC, an Atlanta wealth management firm that continues to run the program under the ownership of turnkey asset management provider BAM Advisor Services in St. Louis.
RIAs that work with Advisor Access can serve as Erisa Section 3(21) fiduciaries for qualified retirement plans, while BAM works as the Erisa Section 3(38) investment manager and takes total responsibility for plan assets, choosing portfolios and offering access to different funds. The program now oversees $1.6 billion in 401(k) assets. Investment policy committee members from BAM and Capital Directions decide which asset classes to target and conduct due diligence on funds.
The portfolio strategies used by Advisors Access, which takes a passive investment approach, have an average expense ratio of 0.24%, says Scott Pritchard, managing director of Advisors Access and a principal at Capital Directions. Dimensional Fund Advisors is a heavy part of the program’s strategy; Advisors Access also uses some Vanguard funds.
Less than 10% of U.S. plans work with Section 3(38) fiduciaries, says Pritchard. “I love the fact that the fiduciary debate is getting more of a spotlight,” he says. “I think it will ultimately benefit plan sponsors and participants.” He expects the new regulations to expand sponsors’ awareness of the different levels of responsibility.
As for last summer’s fee disclosure rules, “I’m disappointed we haven’t seen more plan sponsors up in arms,” he says. He thinks many still don’t understand the information and says a lot of disclosures remain opaque.
Best Practices
Independent B-D Raymond James Financial is training its approximately 1,800 advisors, who manage 8,000 DC plans, to employ numerous best practices. This includes engaging 401(k) plan sponsors with written agreements that detail responsibilities and terms of service; benchmarking fees and services to make sure fees are reasonable; helping plan sponsors understand their fiduciary responsibilities; and encouraging plan sponsors to have written investment policy statements and regularly monitor investments to make sure they are in line with plan objectives.
“These are some best practices no matter what the DOL decides, but will be especially important if there are changes to the rules,” says Bo Bohanan, director of retirement plan consulting for Raymond James. “We will have to wait and see what explicit changes the DOL makes in order to fine-tune these practices and provide further education and resources that are timely, relevant and appropriate.”