Financial Advisor Focus – Fees, Funds and Outcomes
Since the Department of Labor introduced its fiduciary rule in 2015, retirement plan providers and financial advisors have been making changes to their business approach to adapt to the new regulation. This regulatory action, which is intended to reduce conflicts of interest and require fiduciary advice apply to retirement plans, IRAs, and rollovers, places additional pressure on financial advisors to demonstrate value for the fees charged.
Even before the DOL proposed a fiduciary requirement, many retirement plan financial advisors already applied a fiduciary standard to their practice. Eighty-five percent already regarded themselves as a plan fiduciary to their clients, a number that has nearly doubled in the last ten years1. It is expected that retirement plan advisors will put an even greater focus on offering best-interest advice by implementing the following as key aspects of their service model:
Effective plan installation
Financial advisors are using their expertise to help plan sponsors match plan features to plan and participant needs. Making best use of plan features can help reduce administrative burdens and help participants build retirement readiness.
Flawless plan sponsor services
Plan sponsors are increasingly looking to financial advisors for help with making decisions and monitoring their plans. Advisors are anticipating needs, staying on top of plan performance data and using their expertise to deliver flawless service to set themselves apart and demonstrate their value. In turn, financial advisors seek out providers who offer solutions that make serving clients better and easier. Top provider requirements include: flexible plan design features, control and access to a wide range of investment options, tools that measure effectiveness, dedicate and knowledgeable service representatives, effective participant tools and education services, and tools that let them manage clients across their book of business.
Open Fund Architecture
With the regulation requiring investment advice go beyond merely suitable investment advice to best interest advice, advisors will likely exchange standard investment portfolios for the flexibility open fund architecture investment platforms offer. From the wide universe of investment options available on open fund architecture platforms, advisors can create custom plan portfolios that meet specific investment objectives and fee arrangements.
Equalized fund revenue sharing
Keeping plan fees in check is at the top of every plan sponsor’s list. With the DOL rule, many financial advisors will trade commission or revenue share fee arrangements for a fee for service model. Commissions or revenue sharing for advice arrangements will become more complex with the new regulation, and more advisors will likely adopt compensation methods that hold less risk of liability, such as a “level” compensation structure or billing clients a set fee.
Improving participant outcomes
Participant outcomes are the ultimate indicator of a retirement plan that meets the needs of its plan participants. Improving outcomes requires the right combination of effective plan features, a carefully chosen and well-priced menu of investment options, and education and communication services that keep participants engaged. Advisors who are focused on bringing best-in-class participant services with best interest customization can help participants reach their financial goals for retirement.
1. Brightwork Partners RSI Survey. June 30, 2017.