Still, opponents are holding out hope the presidential memo will spur less onerous rules if not outright relief, particularly for firms serving retail investors.
“We are concerned that the rule contains convoluted extraneous conditions that are not only based on imperfect data but contradict the intent” of the memo, said Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, Washington, which represents broker-dealers, banks and money managers. “The memorandum directs a review of the entire rule and its impact, not part (of it),” Mr. Bentsen said.
Service providers must have systems in place to follow standards dictated by the rule, including easy-to-understand compensation practices, by June 9. On that date, DOL officials could start enforcing the fiduciary regulation in the context of plans covered by the Employee Income Security Act, although in the delay notice they promised a “compliance-first” posture. Service providers choosing to act as fiduciaries also gain exemptions if they adhere to impartial conduct standards for covered transactions between June and January 2018, the implementation date for stricter “best interests” standards for documenting that they put clients first.
While most of the compliance burden with the new rule falls on service providers that have been gearing up for the changes all year, plan sponsors still need to be careful, said Kent Mason, a Washington-based lawyer with Davis & Harman LLP who represents several major financial institutions.
“The issues that have concerned plan sponsors relate to the overly broad definition of a fiduciary, which could make their human resources employees and call center personnel into fiduciaries. This possibility imposes severe monitoring obligations on plan sponsors,” he warns.
Regardless of what ultimately happens to the fiduciary rule, “sponsors must be attentive to changes in record-keeper policies” and may have opportunities to improve those relationships, said Stephen McCaffrey, president of the Plan Sponsor Council of America, Chicago. “A lot of the providers were giving plan sponsors new contracts. It might be the type of thing that could be very beneficial for plan sponsors.”
As record-keepers and financial planners come in with new service agreements, Mr. McCaffrey said, “the plan sponsor has to look at those agreements and what obligations they are taking on.”
Reviewing contracts and documenting that process is key, legal experts said. “Hopefully, plan sponsors are paying more attention to what they need to look for,” said Kathleen M. McBride, a New Jersey-based founder of the Committee for the Fiduciary Standard. She urges plan sponsors to train plan fiduciaries, and conduct independent benchmarking of fees and costs. “Plans are getting ripped off in much the same way as retail investors” when service provider practices like revenue-sharing are not in the plan's best interest, said Ms. McBride, and “the plan sponsor is completely on the hook for the responsibility.”
Rollovers are one area where the new fiduciary rule could help plan participants, said PSCA's Mr. McCaffrey. Plan sponsors have always been fiduciaries, with responsibility to monitor record-keepers and outside managers for what participants are told about leaving money with the sponsor or rolling it into a separate IRA, and some did negotiate the ability to listen in on phone calls to see what is being said to participants. “Now with the rule, that burden is being placed on record-keepers, advisers — anybody who is giving advice. You are seeing a lot of movement,” Mr. McCaffrey said.