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Despite DOL Fiduciary Suspension, Merrill, Morgan Stanley Roll Out Products

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While it was anticipated that the Department of Labor (DOL) fiduciary rule could hinder the availability of financial advice for small business clients, major investment firms have recently taken steps to ensure that exactly the opposite is true. Despite the current delayed applicability status of the fiduciary rule, firms have begun rolling out products aimed at complying with the rule or its successor—highlighting the fact that fiduciary awareness is likely here to stay. 

The most recent lineup consists of products and processes designed to make it easier for advisors to provide guidance to small business owners looking to provide 401(k) retirement planning options.  This turn represents a significant step toward increased availability of retirement planning advice for small business clients regardless of whether or not the fiduciary rule is retained.

The New 401(k) Advisory Platform

The DOL fiduciary rule’s future is uncertain, but major investment firms have been preparing for the April 10 applicability date for months and have now begun to debut the results of those preparations. Some firms, such as Morgan Stanley and Merrill Lynch, have focused on ways to continue to serve the small business 401(k) market in a post-fiduciary environment.

Morgan Stanley has chosen to partner with a third-party recordkeeping and administrative service provider, but will provide investment advice itself, for retirement plans with under $10 million in investments. As such, the firm itself will assume the fiduciary role, rather than the individual advisors, so that each of its advisors will be able to act in a fiduciary capacity when advising clients with reduced risk. 

This design is aimed at ensuring that smaller clients remain able to access needed financial advice.  Under their previously existing system, advisors were required to become designated retirement specialists in order to provide fiduciary advice to 401(k) clients.

Like Morgan Stanley, Merrill Lynch provides advisors with the option of receiving a special designation to provide fiduciary advice to clients seeking retirement planning options. Under Merrill Lynch’s newly designed system, advisors will still be required to obtain this designation, but will become eligible once the advisor advises on $30 million in retirement plan assets, as opposed to the previously applicable $100 million limit.

Both systems are aimed at ensuring that more advisors are eligible to work with clients as fiduciaries, so that smaller clients continue to receive retirement plan advice even if the fiduciary rule becomes effective in its current form.

A Fiduciary Rule Roadmap

After the President directed the DOL to reevaluate the fiduciary rule (which was finalized in April 2016) and its potential impact on February 3, the DOL proposed a 60-day delay to the fiduciary rule and is still evaluating whether to delay the rule’s April 10 applicability date.

However, under subsequent DOL guidance, if the rule has not been formally delayed by April 10 and the DOL issues a final delay after that date, the DOL will not enforce the rule during the “gap” period that occurs during the time between April 10 and the date the final delay is released. Further, if the DOL decides not to delay the fiduciary rule, it will not enforce the rule against firms that do not comply with the rule by the April 10 date, provided that they satisfy the conditions of the rule or applicable prohibited transaction exemptions within a reasonable period after a decision not to delay the rule is published. (See DOL Sends Final Fiduciary Rule Delay Request to OMB.)

If the rule is enacted in its current form (which is now widely unexpected), an advisor would become subject to a heightened fiduciary standard for providing specific investment advice with respect to 401(k) plans and other retirement planning options. The DOL rule does, however, allow advisors to continue to provide general retirement education, such as historical information about different assets, to clients without triggering the fiduciary standard. 


Whether or not the fiduciary rule is here to stay, the move toward making fiduciary-friendly advice available to small business clients indicates a basic shift in the retirement advisory industry—indicating that fiduciary awareness is likely here to stay.


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