Advisers May Leave DC Plans

If implemented as it stands, in April, the Department of Labor (DOL) conflict of interest rule would expand fiduciary responsibility to virtually all advisers servicing the retirement market, either through providing investment advice to plans and participants or consulting about health savings accounts (HSAs).

The rule will also assign the role of fiduciary, as defined by the Employee Retirement Income Security Act (ERISA), to advisers  who serve individual retirement accounts (IRAs). This move places heightened scrutiny on the decision to recommend that assets be rolled over from employer-sponsored retirement plans into IRAs.

“Advisers accustomed to parlaying defined contribution [DC] plan assets into traditional wealth management relationships via IRA rollovers face new obstacles,” says Dan Cook, associate analyst at research firm Cerulli Associates. “To justify that an IRA rollover is in the best interest of a DC plan participant, advisers will face additional compliance and operational work.”

Similar regulatory responsibilities under the fiduciary rule could trigger major changes to the way advisers do business, and some may leave the DC plan space entirely—a topic explored in a new Cerulli report.

“Cerulli asserts that the hurdles the DOL conflict of interest rule create will force another round of ‘in or out’ for the population of advisers operating in the employer-sponsored retirement plan market,” says Jessica Sclafani, associate director at the firm. “Some advisers will be mandated by their broker/dealer [B/D] or wirehouse to choose between DC plan business and traditional wealth management, rather than operate in both channels.”