Investment Decisions Post-Fiduciary Rule

   Terry Burns, AVP, Products & InvestmentsThe Department of Labor [DOL]’s new fiduciary rule is causing many advisors in the industry to take a step
back and look at their practice and how they conduct business. Among other things, the new rule will further define what it means for advisors to put their clients’ interests first when giving advice and will drive increased transparency regarding compensation and conflicts of interest. Terry Burns, assistant vice president, products and investments, OneAmerica Retirement Services, discusses how OneAmerica is working to support advisors in this endeavor.

PA: The new fiduciary rule from the DOL is changing the way many conduct business in the retirement space. It’s affecting advisors, financial institutions and the clients of both. Why would this new rule push revenue-sharing funds into the spotlight?

Burns: Revenue-sharing funds are common practice in the industry today. Revenue-sharing, otherwise known as 12b-1, fees expose advisors to receiving variable compensation. Because the DOL believes such fees create a conflict-of-interest environment, under the new rule, advisors will have a difficult time receiving them on sales to qualified assets, unless they make use of an exemption. While using an exemption is possible, this can prove to be a challenging task in the new fiduciary world. The difficulty will lie in not only making sure an advisor’s financial institution will allow the use of exemptions, but also in the additional paperwork, compliance and legal efforts now required to conduct business in this manner. 

PA: As a plan provider, recently you added zero revenue-sharing funds to your group annuity lineup and already have them available on your open architecture platform. How does this investment option support advisors in the new fiduciary world?

Burns: Zero revenue-sharing funds allow advisors the option to bypass the need for an exemption. With zero revenue-sharing funds, participants pay only the investment management expense. This levelizes the fee across all participants, because the opportunity for variable revenue sharing is removed. Other fees such as investment advisory or provider fees are billed separately—typically as flat or asset-based fees. From a best interest perspective, zero revenue-sharing funds have some distinct advantages in the new fiduciary world. They pave the way for levelized compensation, promote equity among plan participants and can alleviate the need for negotiating share class conversions in order to lower plan costs.

PA: Zero revenue-sharing funds are not new to the business, but we have heard that they’ve gained significant traction in the past few years. Do you foresee this growth continuing in the future?

Burns: Due to the push for increased fee transparency, the industry has been slowly conforming to the use of zero revenue-sharing funds over the past several years. In fact, the use of these funds has increased by 16%, up to 72%, in just the past three years.¹ It’s my speculation that the use of these funds will continue to rise dramatically due to the new rule. Having said that, advisors and their clients need to work together to weigh the benefits versus the considerations in adding zero revenue-sharing funds. We realize that the funds have a place in the market, and for those who do wish to utilize them, we offer a unique product called Strategic and Targeted Allocation of Revenue [STAR]. This program provides a method of revenue allocation that ensures participants receive a proportional allocation of revenue sharing based on their individual investment allocation choices. It effectively eliminates the possibility of certain participants paying more of the plan administration costs than
others do. The bottom line is OneAmerica offers a broad range of investment options for advisors that enable them to make recommendations that are in the best interests of their clients, while still receiving compensation in a way that is most beneficial to them.

To learn more about OneAmerica and the new fiduciary rule, visit www.oneamerica.com/fiduciary. To have questions answered, contact the OneAmerica Retirement Services Internal Sales Desk at 1-866-313-7355. OneAmerica Retirement Services has $58.4 billion in assets under administration and services over 1 million plan participants.²
OneAmerica® is the marketing name for the companies of OneAmerica. Products issued and underwritten by American United Life Insurance Company® (AUL), a OneAmerica company. Provided content is for overview and informational purposes only and is not intended as tax, legal, fiduciary, or investment advice. Registered Representatives of and securities offered through OneAmerica Securities, Inc., Member FINRA, SIPC,
433 N. Capitol Ave., Indianapolis, IN 46204. 1-877-285-3863.
¹Callan Associates, 2016 Defined Contribution Trends Survey, January 1, 2016
²As of June 30, 2016