When does a person providing investment advice become a fiduciary under the Employee Retirement Income Security Act (Erisa)? The jury is still out, but it may not be for much longer.

Some industry trackers speculate the U.S. Department of Labor will issue its long-delayed rule on the definition of “fiduciary” in early 2015. Securities and Exchange Commission chair Mary Jo White has said she wants her agency to decide by the end of this year whether to proceed with a rule to establish a uniform fiduciary standard for broker-dealers and registered investment advisors.

The exact timing of tougher fiduciary standards is, however, of little concern to wealth managers focused on building out their 401(k) business.

Among them is St. Louis-based Acropolis Investment Management LLC, a fee-only firm that entered the 401(k) business several months after passage of the Pension Protection Act of 2006. Its total assets under management exceed $1 billion, including approximately $175 million in the 26 401(k) plans it manages.

Mike Lissner, a partner who oversees Acropolis’s retirement plan business, says he wouldn’t hold his breath waiting for the DOL rule in early 2015. Still, he is pleased with the fiduciary-related changes the department has been trying to push. “I’ve been frustrated with the pace,” he says, “but I think the direction is absolutely right.”

As he sees it, most plan trustees don’t have a good grasp of what to do and usually defer to their investment managers without passing responsibility to them. “They’re on the hook for us,” he says, but “my feet should be held to the fire.”

Acropolis serves as an Erisa Section 3(21) fiduciary on most of its 401(k) plans, which gives it shared responsibilities with plan trustees. It’s moving more toward being a Section 3(38) fiduciary—assuming sole responsibility for plans, including control and discretion over plan assets.

If more advisors adopted Section 3(38) relationships, he thinks it would help reduce 401(k) fees considerably. “A brokerage company probably doesn’t want to be put on the stand and defend that they selected a fund because it paid them more,” he says.

He notes there have been more than a dozen high-profile court cases pertaining to 401(k) plans, many of them focused on fees.
Recently, there has been much industry debate over revenue sharing—using a portion of the investment fees paid by participants for the plan’s administrative expenses. Acropolis, which primarily uses index funds, has never had revenue sharing and if it were to use a fund that had it, shared fees would return to the plan, he says.

To help address participant deficiencies in retirement readiness, a widespread industry problem, Acropolis has developed a program in-house that plan sponsors can offer employees. The firm writes educational materials and holds participant sessions two to four times annually. Acropolis reviews record-keeper data on its plans’ participation rates, contribution rates and asset allocation to help develop content and measure training outcomes.

With asset allocation, “My theory—not that I’m draconian in any particular sense—is that 98% of participants should be using a target-date plan,” says Lissner. He reasons that individuals’ investment decisions are often influenced by where the market is, not by their circumstances.

Like retirement giant CalPERS, which recently dumped its hedge-fund holdings, Lissner is leery of including alternative investments in 401(k) plan lineups. “I’m not against alternative investments, but I’m against alternatives for the masses,” he says. “I’m most scared of participants hurting themselves.”

He thinks uninformed investors may be tempted to select investments based on past years’ performance without comprehending expense ratios and risks. “The key with 401(k) plans is broad diversification in low-cost funds,” he says. “Alternatives are neither.” When a trustee for a plan Acropolis serves as a 3(21) fiduciary made the ultimate decision to include a hedge fund in the plan lineup, Acropolis wrote why it was a bad idea, he says.

The Department of Labor is taking comments through November 19 about the ways 401(k) plans use brokerage windows, also known as self-directed brokerage accounts. “My bias is, if the trustees of a plan or senior executives want them, that’s fine,” says Lissner, noting that 10% to 15% of Acropolis’s plans offer these accounts. But the firm’s default offering has no brokerage window—which must be a plan-wide feature available to all participants. It must be requested by a plan sponsor.

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