Morgan Stanley Wealth Management is clothing itself as a fiduciary to move its advisors into the small 401(k) space.
The New York-based wirehouse is teaming up with Dresher, Pa.-based Ascensus to launch ClearFit, a program designed specifically for small-business retirement plans with between $0 and $10 million in assets.
“The small-business space is underserved, but it’s also where the majority of plans are,” says Kathleen Connelly, Ascensus executive vice president of client experience and relationship management. “The product brings the same type of low-cost investing that large institutional clients get to use all the way down market.”
While Ascensus will provide the recordkeeping services for the plan, Morgan Stanley will serve as ClearFit’s ERISA Section 3(38) investment manager, a responsibility typically of a plan advisor or sponsor.
Currently, most advisors servicing the small-plan space are non-fiduciary brokers, who could be exposed to litigation risk and other issues should the Department of Labor’s fiduciary rule become effective.
“This is a leading-edge move in the marketplace,” says Connelly. “There are not many broker-dealers who are stepping up to say, ‘You can hold us fully accountable to those investment choices.’’’ From Morgan Stanley’s perspective, it’s important to offer their clients a premier product that checks all the boxes on the things they should be concerned about … if you’re a smaller employer and you have the power, experience and breadth of Morgan Stanley behind you making decisions, you’re putting yourself in a safe place.”
At Morgan Stanley, only a few hundred advisors have been able to serve as plan fiduciaries, because most of the company’s representatives have charged commissions when serving plans.
ClearFit now gives Morgan Stanley and its advisors enough protection under ERISA to access the small-plan space directly, with Ascensus’s recordkeeping services in place to keep costs down for participants and sponsors.
As the investment manager, Morgan Stanley becomes responsible for selecting and overseeing ClearFit’s uniform investment lineup, which will use a multi-manager, non-proprietary approach within collective investment trusts.
Morgan Stanley will also design and apply proprietary glide paths to employees’ target-date investment selections. All told, the fund menu will cost less than 40 basis points for most participants.