Monday marks the first business day on which the new definition of “fiduciary advice” will govern the recommendations plan sponsors and individuals receive from financial professionals. Yes, the rule became applicable on Friday. But among many indications of the current administration’s hesitation to embrace the rule was the DOL’s clarification that the rule didn’t become effective until 11:59 pm Friday in the time zone in which the advice was provided. This leaves Monday, June 12 as the key business day on which the definition and new impartial conduct standards apply.
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What steps should plan sponsors take now? The fiduciary rule and accompanying prohibited transaction exemptions continue to face a winding road ahead. But, as that process unfolds, and potentially unravels at various steps along the way, plan sponsors should be sure to gather the answers to the following questions:
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– Is our plan’s financial advisor a fiduciary? (This should be a yes/no question.)
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– If so, what, if anything, changes as a result of the fiduciary rule? (For most, including QPA, the answer will be: very little, if anything.)
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– If not, what is the advisor’s response to the rule? (Be aware that many who previously were not fiduciaries are reluctant to embrace the new rule. They may indicate that many unsettled questions remain. Disregard that misdirection and insist on clear answers to your questions.)
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– What is our recordkeeper’s approach to the rule? Will it be a fiduciary regarding its call center recommendations or any other participant communications? If so, what controls do you have over the unbiased nature of the advice? (Your advisor should help you answer this question.)
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– If your non-fiduciary broker has brought a new bolt-on fiduciary service (made necessary by the broker’s inability or refusal to comply with the new rule), what do you know about that service? Will you ever meet that new fiduciary? Will they customize services for you or did you merely get a “fiduciary in a box”? How will you police conflicts among the service, the broker, and the recordkeeper?
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As we hear more about some of the creative and elusive responses to those questions, we’ll be sharing more thoughts. For the time being, prudent fiduciaries will pose the questions as a part of their ongoing duty to monitor their plans’ service providers.
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