Plan advisors from VA had a great time this morning talking with Senator Warner's staffer about tweaking the DOL's proposed fiduciary regulation. I thought it might be good to share what we said while packed in the tiny conference room!
First off, it comes as no surprise to anyone that there are jerks and crooks in our industry. The news tells us about it all the time, right? The folks that I was in the company of this morning were all advisors dedicated to helping employees plan for retirement and helping employers offer good plans. We operate under ERISA rules, so we've always known that when you advise on a plan, you are bound by the Fiduciary Standard: exercising due process and working solely in the best interest of employees. (In other words, if you don't put your clients first, you will get sued and a curse will be put upon your house.) We adhere to a different code of ethics than most; put the client's interests first, always, above your own.
It should also come as no surprise that our motley crew of pension nerds is very much in favor of an expanded, enforceable fiduciary definition for retirement plans to keep the jerks and crooks out of our industry and protect more organizations and employees. The sooner that happens, the better.
As members of the National Association of Plan Advisors (NAPA), we talked today about how to tweak the DOL's proposed regulation to make it better serve its intended purpose: protect employees by providing an enforceable way to make sure brokers/advisors do right, and continue to make it easy to expand retirement plan coverage. What we don't want is to end up in The Land of Unintended Consequences where it's practically impossible to be helpful!
Plan advisers should be encouraged to help plan participants with rollovers, not penalized for providing advice to the plan.
There's a long back story to this point. Contact me if you want to hear it! We asked that if the fee is level, meaning the advisor is not making more money by steering the employee to one product or investment that pays more than another, that there not be a ginormous amount of hoops that accompany helping someone roll to an IRA if that's what's best for them. There's a lot of work in financial planning and narrowing the investment universe down to what's most appropriate for an individual than for a plan, so the fee might be higher outside a plan, but an employee should receive a ton more service and custom advice with that fee.
New restrictions on investment education will make participant education harder to translate into practice, and so less helpful to participants.
We've always been allowed to educate employees on investing and making wise choices. When people enroll in their plan and want some help choosing investments, we often provide a sheet with sample risk-based portfolios and a list of which investments fit which category in the pie charts. This is standard investment education -- Modern Portfolio Theory and asset allocation. The proposed regulations have blurred that line by saying if we provide the color-by-number cheat-sheet, EVEN if we are paid the SAME no matter what an employee chooses and EVEN IF we never met the employee, then that actually qualifies as us giving direct advice to them instead of providing general education.
Here's why it's a good idea: DOL wants to make sure an advisor is not steering someone to something that pays the advisor MORE (see crooks and jerks above).
Here's the downfall: Many times we won't meet with every employee because they won't elect to come talk to us. It's hard to swallow that we'd be construed as having personally advised them by handing out a reference sheet with 5 sample portfolios on it, or other literature, or even just explaining what a mid cap fund is or what a certain fund's risk profile is.
So, we asked that if the compensation is level no matter what investments the employee chooses in the plan, we still be allowed to provide these reference pieces as education without 100 more pages of duplicate disclosures and special websites.
NAPA supports a best interest standard that doesn’t discourage advisers from wanting to work with small business.
Captain Obvious here: Anything we can do to make it easier for plans to get started and cover more employees, we're in favor of! The fear is that parts of the proposed regulations might make it more difficult for small businesses to get a plan in place by adding more paperwork and hoops. Let's make it as easy as possible to get more people covered by a plan!
We'd like a 2-year transition period after publication of the final rule to allow adequate time to transition existing relationships to the new requirements.
Right now they're rushing to get this in place before the current administration leaves office. Totally fine! We just asked for more time before it goes into effect to get our ducks in a row [Read: our compliance attorneys time to review and tell us what we can/can't do, consider the easiest methods of complying and helping clients, asking DOL for further clarification on anything that comes up, then explaining to and repapering our current clients].
Final words -
It was a great honor to participate in democracy today. A lot of folks bash it, but we saw a lot of work being done! Hopefully we can all work together to create a stronger standard, ideally that easily holds the jerks and crooks accountable and simultaneously helps close the savings gap. Americans on the whole need to save around $7 Trillion more in order to be on track to retire comfortably, according to our friends at DOL that spoke yesterday. That's a big number and we work every day to make it smaller and help more people get covered by a retirement plan!