In the good old days of participant directed 401(k) plans, a good chunk of financial advisors did very little work for the plans that they advised. Many of them sat back, collected their trail or asset based fee, and maybe saw the client once a year. Thanks to changes in regulations and court decisions, the day of wine and roses are over.
Recent court cases especially the DeWolf case, make it far easier for 401(k) participants to sue plan sponsors. In addition, the poor market returns have created incentive on plan participants to sue plan sponsor for breach of fiduciary duty. These cases have shown that many plan sponsors don’t do a very good job in managing the fiduciary process in developing an investment policy statement (IPS), reviewing plan investments against the IPS, and providing participant education.
The new fiduciary regulations, if implemented, will create a level playing field for all financial advisors who will then bear the risk of providing advice to plan sponsors.
While so many other plan providers tell me that they are jealous on how much advisors charge and how little they do, a financial advisor is an integral part of limiting a plan sponsor’s fiduciary liability and so many are underpaid for what they do. Sure I have found those advisors making 60 basis points on a $14 million plan and do nothing, there are so many advisors that understand their role and do a great job in limiting a plan sponsor’s liability, The fiduciary process of being a plan sponsor is an arduous task, so plan sponsors need to rely on someone and that someone is a financial advisor, Whether they serve as a broker, co-fiduciary, or an ERISA fiduciary, a financial advisor has a job to do. The days of showing once in a while offering no IPS help or participant education is slowly becoming part of the retirement plan past.
The day where an advisor can simply put a plan on a bundled platform and forget about the plan until the quarterly fee is paid is over. Financial advisors will have to help the plan sponsors out to manage the fiduciary process. If financial advisors are not up to the task, then they should surround themselves with those that can like an independent ERISA attorney or a top notch third party administrator. Some advisors have sought out the advice of a Loring Ward or Advisors Access to offer a turnkey 401(k) platform and support.
Financial advisors can sit back and pretend the good old days are her, but they stand at the risk of losing business to those breed of financial advisors that know their role and will strive to fulfill it.