Matrix Financial Solutions, a Broadridge Financial Solutions company, released on Monday a practice guide outlining a three-step action plan advisors can take to ensure they’re complying with fiduciary standards under the Employee Retirement Income Security Act.
The guide, ERISA Fiduciary Issues: A Practice Guide for Advisors, was unveiled at the Financial Services Institute’s annual conference in San Diego, and offers an in-depth look at ERISA fiduciary rules and standards that may apply when advisors are delivering investment advice to retirement plan clients.
The guide is particularly timely, given that the Department of Labor plans to repropose its rule to amend the definition of fiduciary under ERISA in July.
The three-step plan, which encourages advisors to review their current business model and strengthen their value proposition through an expanded set of services specifically designed to help plan sponsors, is as follows:
Assess Your Current Business Model
For fiduciary advisors, it is prudent to periodically self-audit and analyze current practices both for regulatory compliance under ERISA and market viability. For non-fiduciary advisors, a self-assessment can confirm that their current practices do not render them an unintentional fiduciary and can also help evaluate whether they would benefit from serving as fiduciaries. The practice guide offers checklists for fiduciary and non-fiduciary advisors.
Define and Communicate Your Value Proposition Relative to Fiduciary Support
A key step in building a business plan and sales strategy is defining and clearly communicating a value proposition to current and potential clients. Among the key components to include is special licensing or credentials, honors or recognition, retirement plan training programs completed, experience in working with other plan sponsors, and success stories.
Help Plan Sponsors Meet Their Fiduciary Duty
Very few plan sponsors really understand what ERISA demands of them. A great step in building a strong relationship with a plan sponsor is to provide them with educational resources, explain their fiduciary role and then help them meet their obligations.
“The fiduciary responsibilities for plan sponsors and advisors are an increasingly important focus for the industry, as well as the Department of Labor,” said Cindy Dash, chief operating officer at Matrix Financial Solutions, in a statement. “Advisors who proactively evaluate and adjust their current business practices to become retirement specialists are in the best position to grow their retirement businesses.”
Dash, who was also part of a panel discussion at the FSI event entitled “The Evolving Role of ERISA in the Independent Financial Advisor Channel,” told AdvisorOne in an email message that the DOL’s fiduciary proposal “will likely broaden the definition of a fiduciary and require more financial professionals to be held to the ERISA fiduciary standards.”
Once the reproposal is issued, ”we can determine how the new definition impacts advisors and brokers and analyze what it means to their retirement plan business. For example, right now when delivering advice to the plan, brokers are generally held to the suitability standard and do not elect to be ERISA fiduciaries, but if the definition is changed, brokers need to determine how to continue to best service their plan clients regardless if they are a covered fiduciary or not.”
Dash went on to say that Matrix believes the change to the ERISA fiduciary standard “is an opportunity for brokers and/or advisor to ensure that they are delivering impartial advice by offering open architecture and level compensation services to the plan. We see open architecture as a way to drive transparency and help educate investors on choice and costs that instills trust and encourages savings. This is a huge value ad that an advisor/broker can offer. Coupled with a level compensation plan where funds are chosen on merit, not costs, provides a big competitive advantage. It also can protect the advisor/broker because it shows a pattern that you can verify that you have done everything in the best interest of the plan.”