If and when the U.S. Department of Labor’s fiduciary rulesurvives several legal challenges, the small andmidsize 401(k) plan market stands to berevolutionized.

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The rule requires all advisors to 401(k) plans with less than$50 million in assets to serve as fiduciaries. Under the EmployeeRetirement Income Security Act, all plan sponsors assume fiduciaryobligations upon offering a defined contribution strategy,irrespective of plan size.

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Related: 5 strategies 401(k) plan fiduciaries are borrowingfrom pensions

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But those sponsors were not required to hire fiduciary advisorsprior to finalization of the Labor Department's rule.

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Critics of the Labor Department's rule have argued thatrequiring advisors to serve as fiduciaries to the small and midsizeplan market will negatively affect access to 401(k) plans at a timewhen policymakers at the federal and state level are crafting andpassing legislation intended to broaden access to retirementsavings for employees of small employers.

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Related: Competition in smaller retirement plan market heatsup

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Requiring all plan advisors to serve as fiduciaries will imposenew regulatory costs and expose both advisors and sponsors to newliabilities, argue opponents of the Labor Department rule.

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That will disincentivize advisors from servicing the massivesegment of small and midsize plans, potentially motivate someexisting sponsors to drop their plans, and discourage other smallemployers not offering a plan from doing so in the future, say therule’s opponents.

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The Labor Department and its advocates obviously disagree withthat analysis. In imposing a fiduciary standard of care on all planadvisors, smaller sponsors will be relieved of liability, asadvisors will be contractually obligated to serve planparticipants’ best interests under the rule.

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With fiduciary advisors at the helm, sponsors and participantswill benefit from improved plan design and investment options withlower costs, as advisors will be prohibited from designing plansloaded with higher costing options that are not in a plan’s bestinterest.

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How many plans will be affected?

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At least one court will consider the potential impact of theLabor Department rule on the small and midsize plan market indetermining whether the agency overstepped its statutory authorityin crafting the rule.

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Related: See all our DOL fiduciary rule reporting

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The U.S. Chamber of Commerce, which has argued the rule willnegatively impact small and midsized plans throughout therulemaking process and after, is part of a consolidated lawsuit inthe U.S. District Court for the Northern District of Texas.

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If the rule survives legal challenges, the question will be howmany 401(k) plans will be affected by the rule.

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Consolidated data is hard to come by, according to severalsources that consolidate data on the 401(k) market.

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Recent data from Judy Diamond Associates, a provider of 401(k) analytictools, shows there are about 481,000 plans with a median balance ator below $58 million in assets.

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And there are nearly 469,000 plans with a median value at orbelow $5.2 million in assets, according to Judy Diamond, a businessunit of ALM Media, the parent company of BenefitsPRO.

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In 2015, analysts at Cerulli Associates set out to examine theimpact of 401(k) specialist advisors on the 401(k) market.

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Nearly half of the $1.3 trillion advisor-sold definedcontribution market is controlled by what Cerulli calls “retirementspecialists,” which the firm defines as advisors that generate atleast half of their revenue from defined contribution retirementplans.

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While their reach and influence on the 401(k) market ispowerful, Cerulli says retirement plan specialists comprise only 5percent of the total advisor population. Furthermore, within thatsmall segment, 45 percent of those plan specialists do not offerservices as an ERISA fiduciary.

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By Cerulli’s numbers, less than 3 percent of the total advisoruniverse operated as an ERISA fiduciary plan specialist prior tofinalization of Labor Department's fiduciary rule.

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Broker-dealers weigh options

James Smith, head of workplace strategy and business developmentat Morningstar, says many broker-dealers are taking a proactiveapproach to measuring the rule’s impact on their 401(k) advisorybusiness, and not waiting for courts to determine the LaborDepartment rule’s fate.

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“We don’t have hard numbers on just how many plans stand to beimpacted, but some of the bigger broker-dealers have up to 30,000plans under advisement,” said Smith. “Right now, industry isfocused on what their risks are, and what practices they will needto change to comply with the rule.”

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By January of 2017, several months before the rule’s first April10th compliance deadline, Morningstar is slated to roll outMorningstar Plan Advantage, an automated small 401(k) plan advisorytool that provides 3(38) fiduciary services for plan sponsors.

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The technology will use Morningstar’s existing fiduciaryadvisory capability, offered through Morningstar InvestmentManagement LLC, a registered investment advisor subsidiary ofMorningstar Inc. that services 13,000 plan sponsors.

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The platform is designed to address the tens of thousands ofsmall plans serviced by nonspecialist broker-dealer advisors.

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At this point, Morningstar is not hoping to compete for all401(k) plans under the Labor Department's $50 million threshold,but is thinking in smaller terms, said Smith.

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“As we talk to industry, we’re finding that differentbroker-dealers have different definitions of ‘small plan’,” saidSmith. “Most broker-dealers already have 401(k) plan specialistadvisors. And they are going to be in very high demand.”

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The question for broker-dealers, says Smith, is what to do withsmall plan sponsor clients that are serviced by generalist wealthmanagers.

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Often, successful wealth managers will have a handful of small401(k) plans in their book, typically acquired as a result ofrelationships with wealthy retail clients that are businessowners.

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Those sponsor clients tend to have 401(k)s with less than $10million in assets, and often substantially less, said Smith. Theplans are not pure profit drivers within retail wealth managers’businesses, but are worth servicing to retain the sponsors that arealso high net-worth retail clients.

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“For the plan advisor specialists, plans that small are notcost-effective to service,” said Smith. “But leaving them to ageneralist advisor opens the broker-dealer up to compliancerisk.”

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Simply walking away from small, or micro plan clients in orderto avoid that risk once the rule is implemented is not a goodoption for broker-dealers, added Smith, because the risk of losingthe associated high net-worth sponsors as retail clients is toogreat.

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Smith said the Plan Advantage platform’s user interface is stillbeing built. Sponsors will have an “expansive” number ofrecordkeepers to choose from, and the option to stay with existingservice providers. “The platform will not favor a singlerecordkeeper, nor will we be recommending a recordkeeper,” heexplained.

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The value for broker dealers is a no-brainer, thinks Smith.

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“This moves a lot of liability off their plate. If I’m abroker-dealer with 8,000 generalists, I have to make sure everyoneis complying with the DOL rule. With the Plan Advantage platform,now all they have to do is monitor us,” he said.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.