A Slippery Regulatory Slope Can Lead You to More Qualified Plan Business

When my son Luke turned 5 this summer, he made it very clear that all he wanted for his birthday was a Slip ’n Slide. (I remember making the same request of my parents at his age.) When he received his gift, Luke patiently asked several questions about how to set it up correctly so he could use it. And that’s when everything went wrong! When I woke up the following morning, I was astonished to see that Luke was playing on the Slip ’n Slide in my living room. Needless to say, the house was a mess.

It’s amazing to me how leaving out one key detail (You set it up outside, Luke!) can wreak such havoc. But it’s those potential missteps that have many advisors shying away from the qualified plan marketplace these days—unfortunately, at a time when plan sponsors are desperately in need of assistance. And many may not even be aware of how much they need your perspective.


To be fair, this concern isn’t unfounded. If a qualified plan isn’t set up and managed properly, if you don’t meet your fiduciary responsibilities, if you provide individual advice when your relationship says you should educate only, you could eventually face some serious consequences. Conversely, if the business is structured within an appropriate framework and with a solid understanding of how all the moving pieces fit together—and you know exactly what your role is—the opportunities can be endless.

Of course, there’s so much information in the proposed and new regulations that many may lack the time to fully understand what these changes entail and how they may impact the qualified plans they manage today and in the future. Believe it or not, this can work to your advantage.

Some advisors and firms have chosen to leave the qualified plan marketplace altogether, specifically because of the uncertainty surrounding these new rules and the liabilities they may create in the advisor/plan sponsor client relationship. And what your competitor walks away from is business that’s potentially ripe for your picking. This market has the potential to offer tremendous growth opportunities over the next several years, especially when you consider that the personal savings rate in the U.S. has increased in the wake of the recession, and the most logical and beneficial savings option is often the 401(k). Advisors who can offer clients a vendor-agnostic, open architecture, fee-based and/or consultative platform may find themselves better positioned to tap into that asset pool.

WHAT DO YOU NEED TO KNOW TO TAKE ADVANTAGE OF THIS ENVIRONMENT? The two most important aspects of the new qualified plan regulations are fee disclosure and investment advice.

Fee disclosure. What’s interesting from my perspective is that our industry, in general, has purposely spent the last 20+ years trying to consolidate fees into one nice package. Now, with these new regulations (and probably future ones as well), it appears we may spend the next decade or so unbundling those fees to disclose what every little service costs. In a word, transparency is the wave of the future.

Indeed, the interim final regulations for Rule 408(b)(2) (more detailed information can be found at www.dol.gov) require all “covered service providers” to disclose the direct and indirect compensation they receive, in writing, before entering into a service contract. Covered service providers include:

  • Fiduciaries, including fiduciaries to investment products and registered investment advisers
  • Providers of recordkeeping and brokerage services
  • Providers of accounting, actuarial, legal, and other professional services if they receive indirect fees from all covered plans (pension, defined contribution, and defined benefit)

While a service-by-service disclosure of fees is generally not required, certain service arrangements—particularly with recordkeepers or platform providers that offer bundled packages—will need to disclose the individual costs of each service.

Before you go about delineating all your services and fees, however, you must first start by spending time discovering how you can charge. Whether you’re affiliated with a broker/dealer, an RIA, or a wirehouse, it’s important to ensure that you’re not in violation of your own corporate policies. It makes sense to review the language in your current agreements (fee-based and consulting), check for the appropriate E&O coverage, and make sure you review all the disclosures in all documents before you get started.

Once you’ve done that, what can you do to start winning business? Between now and July 16, 2011 (the effective date of the regulations), many qualified plan sponsors will be looking to better understand overall plan health and the value of advisor and provider relationships. Some may find that the fees they pay are reasonable, while others will choose to collect some additional competitive analysis. New services are available that put information about plan competitiveness and fees into public view, and this is where I believe you can take a more proactive approach.

Knowing that many clients and prospects will need to conduct a fee benchmarking analysis, why not provide them with your fee schedule now, while also offering to conduct an analysis of their current provider for them? Professional relationships with CPAs, attorneys, auditors, business consultants, and others may also provide you with a direct line of access to the key decision makers of these qualified plans. Assuming you can charge a fee to conduct this research through a consulting agreement, you’ve already started to position yourself as a valued consultant. And that’s something the competition isn’t likely doing today.

If you maintain a website, make it a priority to add any new qualified plan material from mutual fund companies, as well as regulatory updates, links to articles, and other information that can enhance your credibility in this area. Taking a proactive stance when it comes to informing other professionals and clients of regulatory changes can give you a huge competitive advantage.

Investment advice. It’s safe to say that qualified plan participants need and want investment advice, especially given the investment climate that exists today. And plan sponsors all have a vested interest in seeing this happen. How will you be able to deliver investment advice to participants?

In a recent Department of Labor fact sheet, the DOL proposed a revised rule limited to the implementation of the Pension Protection Act statutory exemption relating to investment advice. The proposed regulation will allow investment advice to be provided under the statutory exemption in two ways:

  1. Through the use of a certified, unbiased computer model
  2. Through an advisor compensated on a level-fee basis (i.e., the fee does not vary based on investments selected by the participants)

Providing investment advice to qualified plans has always been a murky area for advisors. Many advisors managing plans today are unaware of what computer-based models are, let alone how they work. And advisors who operate in a commissionable capacity and provide advice to participants can be considered a functional fiduciary. (We can probably expect the SEC to provide further insight into who will be considered a fiduciary soon.)

This is another area where a consulting agreement, under which you can charge a project fee, can give you an advantage. With this approach, you can service qualified plans conflict-free, receive level compensation, and provide investment advice, all while acknowledging your fiduciary role for the activities you take on. Investing in third-party investment analytic tools can help you perform investment due diligence tasks required of advisors who provide investment advice to plan sponsors and participants, as well as help you construct computer-based models to comply with the new regulations.


In an environment where change is all around us, why not proactively adopt a sound strategy and invest in the appropriate tools, resources, and programs that can help you gain a greater share of the business that’s sliding away from your competitors? There are a plethora of new tools designed specifically to address where I believe the industry is heading, and it could be just what you need to take advantage of the coming opportunities in the qualified plan marketplace. In addition, advisors who acknowledge and promote the fiduciary responsibility they share with their qualified plan sponsor clients offer a unique relationship that, by itself, could open the door to tremendous opportunities.

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