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DOL Fiduciary Rule
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Keeping Plan Sponsors on the Right Side of the Education Versus Advice Line

The DOL fiduciary rule provides guidance on the education versus advice question.

Retirement plan participants need education about their plans, but many participants also need advice on how to allocate their savings within their plans’ options. Consequently, it can be difficult to treat plan education and advice as two separate processes, but it’s a distinction plan sponsors need to recognize.

According to a recent white paper from New York City-based attorneys Shearman & Sterling LLP, the Department of Labor’s fiduciary rule largely incorporated a 1996 Interpretative Bulletin, IB-96-1, to provide guidance on the education versus advice question. The Bulletin and subsequent ruling identify four broad categories of investment education: plan information; general financial, investment and retirement information; asset allocation models and interactive investment materials. As a rule, information will be considered advice instead of education “if it includes advice or recommendations as to specific investment products or specific investment managers,” the white paper notes.

Why It Matters

Plan sponsors typically hire third parties to administer their plan education efforts, says Ken Laverriere, partner, Compensation, Governance & ERISA Group with Shearman & Sterling LLP. The plan sponsor’s primary role is to ensure that investment advice isn’t being given inadvertently; otherwise, the plan committee overseeing that third party is not doing its job, he explains: “That has not changed by virtue of the DOL fiduciary rule. That has been an ongoing obligation, so the plan sponsor or appointing fiduciary has to make a judgment about what actions are being taken by these third parties to assure they’re not giving investment advice.” 

Plan administrators and recordkeepers frequently provide websites, newsletters, portals and call centers as part of their service package. These multiple points of contact with participants can create opportunities for inadvertent problems should the provided information cross over to advice. Laverriere says many of the large plan service providers are already reviewing their educational materials and information delivery systems but sponsors should be asking their providers about any planned changes to these channels to reduce the risk of providing advice. “If you’re a plan sponsor, one question you should be asking your administrators is what’s going to change?” he advises. “That’s a big deal. Are you worried about some of these constituting recommendations? Are you paring things back? These are important questions that employers should be raising in conversation with their administrators.”

A Business Opportunity?

The renewed emphasis on maintaining the distinction between education and advice while simultaneously providing useful educational resources creates a potential opportunity for advisors and consultants to add value, says Brad Bonno, director of product delivery with PNC Retirement Solutions in Pittsburgh. He points out that the plan consulting business is becoming more competitive and asserts that retirement consultants will be looking for differentiators. “If they’re able to include in their proposal for a plan more around the analysis and their ability to build the education campaigns, that’s going to be a differentiator for them that will bring business,” he says. 

Bonno believes some sponsors don’t understand what they are getting from their participant-education providers. An advisor’s ability to show a plan sponsor what they’re being offered and are receiving is “a big first step to help the plan sponsor,” he maintains. The consultant’s in-depth knowledge of the different providers’ and recordkeepers’ educational platforms allows plan-clients to select third parties that meet their objectives. “I think what the industry has evolved to, unfortunately, is a lot of providers that offer pretty much cookie-cutter education that is reactive,” he says. “So if the plan sponsor isn’t forcing the issue or has an advisor that’s forcing the issue, a lot of them are getting the bare minimum from an education standpoint. When you involve an advisor who can help drive to make sure the education is in line with leading to the success of the plan and getting participants where they need to be from a retirement-readiness standpoint, I think they can have a huge impact."

Working with plans to develop educational policy statements (EPS) is another potential business opportunity. These statements describe the plan’s education program and detail its parameters and goals. Bonno is seeing more use of these statements and believes their adoption will increase. Like investment policy statements, educational policy statements will be dynamic documents, he adds: “If they make a change in terms of how they want to interact with their participants, they update the EPS.”

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