[Editor's note: This is a corrected version of the originalstory.]

The U.S. Department of Labor’s fiduciaryrule doesn’t give Joel Shapiro heartburn.

An attorney who specialized in the Employee Retirement IncomeSecurity Act in a previous life, Shapiro is now the senior vicepresident of ERISA compliance in the retirement division of NFP,the plan advisory arm of insurance and benefits brokerage NFP Corp.

“We’re comfortable taking on the fiduciary role because that hasbeen the core of our business,” Shapiro told BenefitsPro.

That said, complying with the Labor Departmentrule will require additional work for NFP’s planadvisory team, which includes 100 plan consultants serving about1,300 plans with assets totaling around $100 billion.

The new rule establishes that anyone providing investmentadvice, as defined by the regulation, to 401(k) plans with lessthan $50 million in assets will be acting in a fiduciary capacity,regardless of how advisors are compensated. Advisors will have tocomply with the rule’s Best Interest Contract Exemption if theyreceive “conflicted compensation” in the form of commissionson the investments recommended to plans.

That will impact a small portion of NFP's client base. About 400plans with $6 billion in assets are served under a commission-basedmodel of compensation. They are typically small plans, saidShapiro. NFP services all plan sizes: Its largest plan has $5billion in assets, he said.

NFP has been busy adjusting to the rule, even before it wasfinalized. In early April, the majority stake of NFP AdvisorServices, the broker-dealer arm of NFP, was sold to private equityfirm Stone Point Capital. That move came after insurance companiesMetLife Inc. and American International Group Inc. sold theirbroker-dealer units.

Since then, NFP Retirement has added to its existing fiduciarycapability, which it began building in 2006 with the acquisition of401(k) Advisors.

In early June, it announced the acquisition of ERISA FiduciaryAdvisors Inc., a Florida-based registered investment advisor planspecialist that Shapiro said was co-founded by a former ERISAattorney and has a reputation for a high “ethical” standard.

Away from broker-dealer model

The move to expand its fiduciary footprint with another regionalcapability is not coincidental to the Labor Department rule.“Clearly, the rule will drive a lot of plan business fromthe broker-dealer model to the RIAside,” said Shapiro, echoing the sentiments of most definedcontribution stakeholders.

In order to comply with the rule, Shapiro did not say NFP waslooking to terminate its relationships with smaller sponsors — he,and others, expect some broker-dealers to leave the small planmarket.

Rather, NFP is working to determine which plans would be betterserved via an RIA fee-based model, and which would continue to bebetter served via a commission model. In an email correcting anearlier version of this story, an NFP representative said the firmhas already determined that a handful of its smaller clients willwork more seamlessly in the RIA fee-model. That means in thosecircumstances, the advice NFP gives will not trigger the BICexemption, because the firm will not be compensated withcommissions that the rule classifies as conflicted.

In order to continue advising plans best served under acommission-based model, Shapiro says plan advisors will need someassistance from recordkeepers.

For sponsors of small plans, typically with less than $10million in assets, the brokerage model can be more efficient andeasier to implement, explained Shapiro. That’s because plans thatsize sometimes don’t have the advantage of so-called ERISA budgetsavailable to larger plans.

ERISA budgets are designed to capture revenue in excess ofrecordkeeping costs and investment management fees. Plan sponsorscan use the excess revenue to pay for other plan costs, like RIAfees, legal fees, and third party administrative fees. An NFPrepresentative clarified that revenue sharing can be used to offsetplan costs, including advisory fees, when a plan is designed on acommission-based model of advisory revenue. ERISA budgetseffectively offer a different, non-commissioned based form ofcompensation which plans can use to pay for advisory fees,according to the NFP representative.

NFP is hoping recordkeepers will facilitate the firm's effort todetermine which compensation model best serves smallerplans. “If recordkeepers come up with compensation models forsmaller plans, the way they have for larger sponsors, that wouldmake that goal easier to achieve, and help assure small sponsorswill get fiduciary services with more understandable feestructures," Shapiro said.

The Labor Department’s fiercestcritics have said the so-called seller’s carve-outprovision of the rule, which requires a fiduciary level of care forplans with less than $50 million in assets, will be expensive tocomply with.

In the hands of the recordkeepers

Those costs will ultimately be passed on to sponsors andparticipants, and will expose plan advisors in the small andmid-size markets to extensive liabilities via potentialclass-action complaints. The combination of those unintendedconsequences will discourage advisors from serving smaller plans,and potentially even discourage small sponsors from offering401(k)s, the critics of the Labor Department rule argue.

Shapiro isn’t quite in that camp. Like many stakeholders, he’s asupporter of the intention behind the rule, but has questions aboutits functionality.

“It remains to be seen what will happen,” he said. “There is thechance advisors will leave the small plan market, and complyingwith the rule may very well drive up the cost of deliveringservice, which will get passed off somewhere. But will we seecomplete underservice of the $50 million and under market — I donot think that will happen.”

Ultimately, recordkeepers’ ability to design options for smallplans as they have for larger plans — with the ability to createclear, compliant and reasonably costing revenue-sharing agreements— will determine how advisors compete for scale among the smallplan market.

That should be achievable, and won’t take a “revolution” inthinking on the part of recordkeepers. “I anticipate recordkeepersare aware of this need,” said Shapiro.

“It’s obviously in their best interest to make currentarrangements with small plans and advisors that work under the newrule,” he added.

Transamerica, recordkeeper to more than 25,000 definedcontribution plans with over $152 billion in assets underadministration, has an ERISA budget-type program in place for smallplans, noted Shapiro.

It allows smaller plans the flexibility of using revenue-sharingagreements to credit the sponsor, and can apply level recordkeepingfees across the plan to ensure one participant isn’t paying morefor plan services than another.

“The fact that one recordkeeper has that type of plan in placeproves that the capability exists for other recordkeepers, and thatit’s economically feasible to provide,” said Shapiro.