Speaking at the ASPPA 401(k) Summit last week in Orlando, Florida, Roberts highlighted some of the legal concerns affecting advisers. For instance, several factors are driving an increase in litigation, including heightened expectations of advisers and increasing awareness of a fiduciary standard. “There’s more of an expectation for services from advisers,” he said.
Fiduciary status related to investment advice to retirement plans is one area regulators are watching closely. In December, the Department of Labor’s Employee Benefits Security Administration (EBSA) said it was considering broadening the definition of a “fiduciary” to any persons who provide investment advice to plans for a fee. Of the Employee Retirement Income Security Act’s five-part test of fiduciary status, Assistant Secretary of Labor Phyllis C. Borzi wrote in December: “We are concerned that it allows advisers from whom plans expect impartial advice to evade fiduciary responsibility” (see “EBSA Examines Fiduciary Status, Investment Advice” and “Suiting Up”).
Roberts said registered representatives and advisers should be on the watch for a broader definition of fiduciary status. He noted that Borzi has particularly expressed concern related to cross-selling and rollovers. Essentially, if the definition of fiduciary is extended to mean any investment advice, it could be extended to rollovers, which have played a large role to many adviser business models, particularly in the smaller end of the retirement plan market.“This is the one area where I think we’re going to see the most activity from the DoL,” he said.
Investment Advice Regs
Roberts also addressed the impact the recently proposed investment advice regulations could have on advisers (see “DoL Proposed Investment Advice Rule Requiring Fees” and “Investment Advice Regs: Interview with Jason Roberts”).
For advisers already operating with “pure-level fees,” they don’t need to use the exemption.
On the other hand, some advisers are providing advice under prohibited arrangements, Roberts noted. While the proposed investment advice regulations allow an exemption for investment advice, “I think these regulations are going to ferret out some of those prohibited arrangements,” Roberts said.
Overall, Roberts said there is more demand from plan sponsors to shift risk to an adviser and put accessible advice in the hands of participants—and advisers should be ready to answer plan sponsor’s inquiries about providing participant advice. “I think advice is going to be more and more sought after,” he said.
Roberts said broker/dealers who don’t provide participant-level advice will move to partner with third parties who do provide it. “I don’t think it’s going to be enough anymore to say, ‘I’m not providing advice, I’ve providing education;’ I think you’re going to have to say ‘I’m not providing advice, they are.’”