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On February 3, President Trump signed a memorandum asking the Department of Labor to review the new fiduciary rules that apply to retirement accounts. The next week, on February 9, the Department of Labor (DoL) filed documents that will likely result in a six-month delay of the scheduled April implementation of the rules.

There have been a lot of comments circulated on the impact of a delay or any changes. And of course, debate has once again been revived on the value of these new rules. Most important, though, is what this means for your 401k plan and participants and what your 401k fiduciary responsibility is.

What To Do

What 401k plan sponsors should do

Regardless of whether the rules are implemented as written or completely discarded, the most important thing 401k plan sponsors should do is determine whether the investment advisor they are working with is signed on as a fiduciary to their 401k plan. Advisors who work for insurance companies and brokerage firms are not required to be fiduciaries when providing advice to clients. Investment advisers who work for Registered Investment Advisory (RIA) firms always have been legally required to be fiduciaries to the 401k plans they work with.

Plan sponsors should compel their investment advisors to respond in writing (don’t accept a verbal “yes”) to the question about whether they are a fiduciary. They also should ask what limitations are attached to any fiduciary representation.

401k fiduciary responsibility: Knowing whether your advisor is a fiduciary

Brokerage firm and insurance company advisors work for their firms first and their clients second. Investment advisers working for RIAs, because they act as fiduciaries, are required to put their client’s interests first. What this means is that brokerage firm and insurance company advisors are legally able to suggest investment options that pay them and their firms more money even when cheaper alternatives exist.

As reported recently by the Consumer Federation of America, most brokerage firms and insurance companies portray their employees as trusted advisors when marketing to the public but as salespeople when opposing the new fiduciary rules. So, are these firms lying to their clients or lying when they oppose the new rules? Are you meeting your 401k fiduciary responsibility requirements if you work with such an advisor? Maybe not!

Brokerage firms and insurance companies still fighting new rules

Money magazine recently published an article, titled “Inside Wall Street’s Secret War on American Investors”, that effectively outlines the conflict of interest advisors working for brokerage firms and insurance companies have and how much it costs the average investor. As a 401k plan sponsor, part of your 401k fiduciary responsibility is to source investment advice for your 401k plan from advisers who are objective and required to take into account your best interests first. These new fiduciary rules are a win for 401k plan sponsors because they force brokerage firm and insurance company advisors to act more like fiduciaries.

What if I am working with a brokerage firm or insurance company advisor?

Take your 401k investment advisory business out to bid and include advisers who work for RIAs. If the rules are implemented as written there will still be exceptions that allow advisors working for brokerage firms and insurance companies to provide conflicted advice (i.e.: advice that is not in the client’s best interest). If the new rules are completely discarded, the only way to obtain objective investment advice is to work with an adviser from a RIA.

Plan sponsors, you can ignore all of the chatter surrounding this issue and meet your 401k fiduciary responsibility by hiring an investment adviser who signs on as a fiduciary to your plan without exceptions.


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or bob@lawtonrpc.com.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at: https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice, and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.