Sommer describes the brokers orinsurance agents that served plans with less than $50 million inassets prior to the rule as “accidental fiduciaries”—they playedthe role of fiduciaries without being beholden to a best intereststandard. (Photo: Shutterstock)

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Broker-dealers who service 401(k) plans dodged a bullet when afederal court vacated the Labor Department's fiduciary rule lastspring.

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Or did they?

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The contentious rule, which the Obama administration spent morethan five years promulgating, would have made fiduciaries of any broker-dealer or insuranceagent advising the investment committees of employer-sponsoredretirement plans with less than $50 million in assets.

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When the rule was finalized in April of 2017,broker-dealers with defined contribution business typically madeplans to consolidate books of business with qualified 3(16)fiduciary advisors within organizations, or require brokers tobecome certified as fiduciaries to comply with the rule, said MattSommer, Vice President, Retirement Strategy Group at JanusHenderson Investors.

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“On the 401(k) side, broker-dealers were moving to the planspecialist model in preparation for the rule,” Sommer toldBenefitsPRO.

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Sommer describes the brokers or insurance agents that servedplans with less than $50 million in assets prior to the rule as“accidental fiduciaries”—they played the role of fiduciarieswithout being beholden to a best interest standard.

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But now that the rule is off the books, the preparationsbroker-dealers and insurance companies made can be expected thestay in place, says Sommer.

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“The horse is out of the barn,” he said. “My experience has beenonce a plan sponsor truly understands what it means to be afiduciary, they want the person they have hired to be in the sameboat as they are.”

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Because of the long and well-publicized debate surroundingLabor's rule, plan sponsors—even smaller ones—have becomemore informed consumers, Sommer thinks.

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More and more, they are demanding a fiduciary level of care.“They are asking their plan advisor—where is your fiduciarycontract,” added Sommer.

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Last year, Denver-based Janus Capital Group merged withU.K.-based Henderson Group. Combined assets under management at thetime were $331 billion. The firm has no defined contributionrecordkeeping unit or internal advisory channel. Its funds areavailable on 200 recordkeeping platforms.

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ERISA attorneys share Sommer's sentiments on the future forbrokers and insurance agents that serve 401(k) plans after the fallof the fiduciary rule.

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While the death of the rule has left larger questions for thetreatment of 401(k) rollovers, those providers makingrecommendations to plans on an ongoing basis will satisfy ERISA'sdefinition of a fiduciary, said Fred Reish, a partner at DrinkerBiddle, in an interview with Think Advisor, BenefitsPRO's sisterpublication.

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Reish said he expects the Labor Department to enforce a stricterinterpretation of how ERISA treats brokers to 401(k) plans goingforward.

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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.