Most of the interest from plan advisers in the provisions of the PPA center around the investment advice provisions of the law. In fact, a staggering 87% of advisers plan to offer investment advice to those in a 401(k) plan, or those who have an IRA, Fidelity determined. Despite the buzz this is generating in the adviser community, David Leibrock, executive vice president at Fidelity Investments, says that the PPA isn’t going to be a boon to advisers just because it allows them to offer advice.However, the PPA will increase an adviser’s value in marketplace, he comments.
The law offers many opportunities to advisers looking to assist plan sponsors in conducting discussions around the provisions of the PPA, and in making plan design decisions. “[Plan sponsors] need someone to help them understand the goals of the plan,’ Liebrock says and, he comments, this is where an adviser can make all the difference. For example, a plan sponsor might want help deciding whether automatic enrollment and the escalation of deferral rates are good plan design features to implement. In this regard, advisers can position themselves as ones who are qualified to assist plan sponsors in their decision-making process regarding their retirement plans.
Regarding the multiple provisions of the PPA that may be applicable to a retirement plan adviser’s business, Liebrock says each adviser has to decide what services he is going to offer and how that will affect his practice. “Advisers need to take a step back and understand the practice management needs of the proposition,’ he says; “they have to know how to profit from it.’
Advisers might want to offer advice because they have expertise in selecting investments, Liebrock explains; however, the survey results seem to suggest that advisers, although excited about offering advice to retirement plan participants, do not understand the associated liability and administrative requirements they will assume in doing so. In fact, only one-third of those surveyed believe they understand the fiduciary responsibilities involved in offering advice to plan participants.
Almost half (45%) of advisers surveyed said they would not offer advice through the computer modeling option offered in the PPA. While some advisers think that bringing in a computer model or a third party model might not showcase their expertise or leverage their value, Liebrock says, it may ultimately be a more profitable solution for some advisers. “I don’t think there is a one size fits all,’ he comments. “Advisers might decide to offer multiple solutions,” he says – suggesting a sound business model might include giving individual advice to someone with $200,000 in an account and using a computer based model for those with $15,000 in their 401(k) accounts. Further, advisers need to think through the fee schedule, he comments.
The law says that in order to offer advice, the adviser must be receiving levelized fees; however, Liebrock says, it is not yet clear whether the law means this has to be done at the individual adviser level or at the broker-dealer level. Until there is final clarity offered around the definition of levelized fees and the specifics about offering advice, advisers shouldn’t make any firm decisions, Liebrock suggests. “Now is the time to do some evaluation and analysis,’ he comments, to plan for how an adviser will implement these provisions once final clarity arrives. Ultimately, what each adviser ends up offering to clients will be a combination of what the PPA says, what an adviser’s broker-dealer allows and what the individual adviser is able to offer, he says.