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One size doesn’t fit all in dealing with DOL’s rule

Margaret McKenna said Fidelity is ready for the rule as well as any changes that might be made later.

Approaches vary to comply with regulation as it is, and might be

Updated with correction

Record keepers are taking multiple approaches to complying with the Department of Labor fiduciary rule despite their uncertainty about whether that rule later will be amended, revised or even repealed.

Some are stepping up fiduciary advice responsibilities to participants over what had been previously viewed as non-fiduciary education. Others are staying a step back from most fiduciary activities, focusing on continued and expanded education services.

At call centers, some record keepers are using a two-step process — providing education when participants make initial contact, but referring them to an internal or external fiduciary if the questions require more detailed responses and guidance.

Record keepers have been pressing ahead despite uncertainty ever since President Donald Trump in February ordered the Labor Department to review the regulation to determine if it “has harmed or is likely to harm” investors, or could increase costs to investors and retirees. The rule's start-date was delayed until June 9, from April 10.

Adding to the uncertainty are several lawsuits filed by financial, insurance and business groups to block or delay the rule. On June 8, two members of the House of Representatives introduced a bill to kill the fiduciary rule and replace it with what they said would better serve participants and advisers.

“While it is possible that the DOL will change or further postpone those requirements in the coming months, we are working to ensure we can continue to provide the help and services our clients and their participants want and need” if the rule is modified, said Margaret McKenna, executive vice president of relationship management for Fidelity Investments, Boston.

'No basis to postpone'

Ms. McKenna and most others interviewed discussed their strategies before Labor Secretary Alexander Acosta said in congressional testimony June 7 that “there is no basis to postpone” the regulation.

However, any rule change “would have to be based on information that is obtained through a record process,” he said. “If that information supports it, then the administration could consider a new rule.”

Also, the Securities and Exchange Commission issued a request June 2 for public comment about the rule's impact on retail investors and entities regulated by the SEC.

A recent informal survey by Aon Hewitt Investment Consulting found seven of the 18 DC plan record keepers “intend to offer online tools, as well as investment advice and distribution counseling in a fiduciary capacity,” Bridget Steinhart, the company's St. Louis-based DC director, wrote in an email.

Eleven record keepers “have determined that while they may offer online participant advice tools, none of the 11 will offer one-on-one investment advice to participants,” Ms. Steinhart wrote. “Three of the 11 have determined to offer distribution counseling in a fiduciary capacity.”

The survey, based on responses as of May 31, covered record keepers in the small-, mid-, and large/jumbo markets, she said. Ms. Steinhart declined to provide the names of respondents or details of their responses.

'Nothing has changed'

Despite the delayed starting date and comments by legislators and regulators, “nothing has changed” at Fidelity, said Ms. McKenna. Fidelity offers sponsors two choices — an education/advice service, in which licensed representatives can provide specific recommendations, and an education-only service, in which representatives can provide “fact-based descriptions.”

Fidelity acted late last year to send corporate DC plans details of how representatives' responses for the two choices cover key retirement subjects such as enrollment, job changes, retirement planning and savings. “Sponsors have responded positively,” said Ms. McKenna, adding that plan sponsor clients representing 95% of participants are covered by participant advice services for Fidelity's direct market clients — sponsors that get services directly from Fidelity, not through a third party such as a consultant or adviser.

The SEC review was welcomed by Edmund Murphy III, president of Empower Retirement, Greenwood Village, Colo., who wants more coordination between the SEC and DOL, asking: “Why is there one approach for retirement and one for other investors?”

Mr. Murphy said the DOL could make adjustments to the rule prior to Jan. 1, 2018. “There remains a great deal of concern among those in the (retirement) industry that those who need the advice the most won't get all the attention that they need,” he said.

Empower is proceeding with its previously announced practices. Like Fidelity, it began contacting sponsors late last year. Empower said changes of address, enrollment and participant-directed instructions are examples of non-fiduciary, education actions. Investment selection, distributions, individual retirement account rollovers and moving accounts from former employers to current ones are fiduciary advice.

Massachusetts Mutual Life Insurance Co. is another record keeper giving clients an early heads-up on fiduciary rule-related changes. In September, it announced expanding fiduciary services for investment selection and monitoring by hiring Envestnet Inc., which provides technology and financial services to advisers and institutions.

Sponsors can allocate certain investment responsibilities to a registered investment adviser unit of Envestnet. The unit or the sponsor creates an investment lineup from a pre-approved list of options. The firm monitors performance and tells MassMutual to adjust investment lineups when necessary. MassMutual delivers its services through intermediaries — not directly to sponsors.

Change is permanent

“Whether the (fiduciary) rule changes or gets modified or repealed, the business model shift is here to stay,” said Carlo Guerrera, the Enfield, Conn.-based head of strategic relationship management for MassMutual. This represents the biggest change to the retirement industry since enactment of the Employee Retirement Income Security Act, he said.

For example, there will be greater fee transparency, primarily affecting sponsors, with a shift “to more fee-based vs. (the) traditional broker-of-record commission structure,” he said.  “The fees charged by advisers and record keepers are displayed more like the mid- to large institutional market does today.”

MassMutual has a two-step call center policy that was in place before the fiduciary rule took effect. Initial participant calls are treated as education requests. If participants seek more detailed information, they are transferred to the plan's adviser, who is the fiduciary.

Principal Financial Inc., Des Moines, Iowa, is maintaining its focus on education, providing participants with information via webinars and call centers, said Joni Tibbets, vice president of retirement solutions.

If participants want more details on IRA rollovers or annuities, call-center representatives will direct the calls to Principal Securities Inc., a separate broker-dealer within the company. The fiduciary rule means information about “benefit events” — such as job changes and roll-ins from former employers — are now considered fiduciary advice, she said.

Fiduciary rule-related changes for John Hancock Retirement Plan Services, Boston, concentrated primarily on adjusting question-and-answer documents for call-center employees and increasing call center monitoring to ensure services meet the DOL requirements, said Patrick Murphy, the company's president. “Our strategy hasn't changed,” he said.

Much of the work involved discussions with plan advisers and consultants and distribution partners “to understand what we are doing,” he added. “Sponsors have been pretty steady and pretty calm given the media attention.”

John Hancock offers a two-step call center process. If participants' initial education information calls venture into specific questions about what to do, representatives will direct the calls to its personal financial solutions group.

At T. Rowe Price Inc., Baltimore, call center representatives present educational information to participants inquiring about what to do if they are retiring or moving to another job, said Diana Awed, head of product and marketing for T. Rowe Price Retirement Plan Services.

“Education is the most important,” she said. “We walk them through four choices and provide pros and cons, but we don't lead them into choices.” The choices are keeping retirement accounts with their current employer, rolling over the accounts to a new employer, doing an IRA rollover or taking a lump sum. Information also is available on a T. Rowe Price website.

If a participant requests information on an IRA rollover to T. Rowe Price, that's a fiduciary action and the call will be directed to the a separate retail services team within T. Rowe Price. “We have clearly delineated service teams,” Ms. Awed said.

“We have clearly delineated service teams,” Ms. Awed said.

This article originally appeared in the June 12, 2017 print issue as, "One size doesn't fit all in dealing with DOL's rule".