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Ken Fisher’s 401(k) Unit Says DOL Fiduciary Plan Limits Investment Advice

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Ken Fisher’s 401(k) subsidiary said in a letter to the Department of Labor that its proposed rule to amend the definition of fiduciary on retirement advice could limit investment advice to small plan participants as well as restrict non-fiduciary marketing services.

DOL resumed its second day of hearings on Tuesday at its headquarters in Washington, with panelists testifying on Labor’s regulatory impact analysis — the costs and benefits — of its plan to redefine fiduciary under the Employee Retirement Income Security Act.

Nathan Fisher, managing director of Fisher Investments’ 401(k) Solutions Business, which provides 401(k) services to small and mid-size companies, told DOL in a comment letter that fee-neutral asset allocation models that identify specific investment alternatives should remain within the scope of investment education—not fiduciary advice.

While Fisher Investments says it understands DOL’s concern that service providers “can use asset allocation models to steer participants to use a specific investment alternative,” Fisher said, the department should “continue to include within the scope of ‘investment education’ online tools and asset allocation models that identify specific investment alternatives in cases where such alternatives are fee neutral with respect to the service provider offering the tool.”

Fisher also urged the DOL to “make clear” that marketing activities by an investment manager of its own services is outside the scope of the proposed rule.

As drafted, DOL’s plan would extend fiduciary status to persons who provide certain investment “recommendations” for a fee or other compensation, whether direct or indirect, to, among others, plan fiduciaries, Fisher told DOL.

“We are concerned that this provision could be read to make our marketing of our own investment management services to a plan sponsor (and thus a plan fiduciary) itself fiduciary investment advice” under the proposed rule.

Fisher added in an interview with ThinkAdvisor that “if a 401(k) service provider is trying to market a tool that’s designed to help plan participants prepare for retirement and that tool is offered on a fee-neutral basis, then that should not be a fiduciary activity.”

To clarify this “unintended” effect, DOL should ensure that the fee triggering the fiduciary status under the proposed rule “must be a separate fee specifically for providing the recommendation and does not include the fee (such as an asset based management fee) a service provider would receive for providing the services once hired;” or, DOL could clarify that “a recommendation triggering fiduciary status includes only a recommendation of another’s product or services and not the marketing of one’s own.”

Fisher noted in the comment letter that while Fisher believes “plan participants and IRA owners should be protected from conflicts of interest, and particularly fee-based conflicts by plan fiduciaries,” the two suggested changes are “targeted, but critical modifications that would significantly improve the proposed rule.”

In the hearing on Tuesday, Sean Collins, senior director of industry and financial analysts for the Investment Company Institute, told DOL execs that Labor’s regulatory impact analysis, which sets out to “justify” DOL’s proposed changes under the rule, “fails to meet that test and is flawed.”

– See related ThinkAdvisor story: DOL Tackles key Fiduciary Plan Proposal at Hearings


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