harmonization post preceded by LRPC's Plan Sponsor Insight image.

When the recently proposed fiduciary rules are finalized there will likely continue to be significant differences between how Registered Investment Advisors (RIAs) and brokers interact with their retirement plan clients from a fiduciary standpoint.

Currently, RIAs are required to act as fiduciaries to their clients while brokers, essentially, are not. This is confusing to plan sponsors because most assume that any investment advisor they work with takes on fiduciary responsibility when they share advice. However, since brokers are acting as agents for their employers, they are allowed to offer advice and products based a “suitability” standard. This standard permits brokers to share advice that may put their interests or their firm’s interests ahead of their client’s. RIAs are always required to keep their client’s best interests first.

After the proposed rules become law, assuming they are not changed significantly, there will continue to be differences between brokers and RIAs in fiduciary responsibility, regulator review and services offered. As the proposed regulations outline, there are many exceptions and exemptions with regard to broker fiduciary responsibility. This lack of continuity between advice givers is likely to continue to confuse plan sponsors seeking advice. Currently, many plan sponsors don’t really know whether they are working with a broker or RIA, nor do they understand what difference it makes. The goal of harmonization is to ensure that brokers and RIAs fall under the same fiduciary rules and regulations so that clients will not have to worry about whether they are working with one or the other. Harmonization would ensure that both deliver the same standard of fiduciary care.

In a recent article, ThinkAdvisor quoted MarketCounsel’s founder and CEO Brian Hamburger addressing the issue of harmonization. Hamburger outlined what has occurred in the United Kingdom where advice givers must decide whether they are a broker or an advisor. Based upon that decision, an advice givers registration will differ as will their required standard of care toward clients. According to Hamburger, this approach to registration makes it easier for investors in the U.K. to know whom to use: a broker for transactional advice and assistance, or an advisor for conflict-free investment advice.

In the U.S., brokers have historically been used to execute buy/sell transactions. In contrast, RIAs have provided conflict-free investment advice and guidance. Is it likely that the U.S. will adopt a model similar to what is being used in the U.K.? Hamburger didn’t think so because the brokerage lobby in Washington is too strong. Is harmonization then the likely result? If so, many experts believe it will be a long, bitter fight.


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, 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 Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor 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: http://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.