John Hancock Investments has released a new white paper aimed at financial advisors who advise retirement plans, anticipating pending regulations regarding the fiduciary standard of care.
Entitled "A seismic shift: what regulatory reform means for your retirement plan business model," the paper explores how advisors can reposition their value propositions and market their services to retirement plans for the next decade.
The paper's authors, Robert J Rafter of RJR Consulting and Gene Huxhold of John Hancock Investments, note that, as a result of potential regulatory changes, it is anticipated that all brokers and advisors rendering investment advice may be held to a fiduciary standard of care, regardless of the focus areas of each advisor's practice. In this environment, they write, the ability of retirement plan advisors to differentiate their services could disappear.
The paper is also of interest to non-specialist advisors whose practices extend beyond retirement plans. These advisors could find that aspects of their retirement plan services will constitute rendering investment advice under the expanded definition that regulators are expected to adopt. This expansion could subject many non-specialists to unwanted liabilities or responsibilities as fiduciaries.
"We believe that if an advisor to a retirement plan will be considered a fiduciary, he or she should have made that a conscious choice," says Huxhold. "The question for the non-specialist is, 'Am I prepared to take on the additional responsibilities and risks in a highly specialised area? I need to look at this relative to my primary advisory business.'"
The authors suggest that before the regulations take effect, advisors should take advantage of a unique opportunity to reposition their value propositions and market their services to plan sponsor clients and prospects, influential attorneys and accountants, and other advisors and brokers who do not wish to operate as fiduciaries.
The paper examines three common fiduciary roles: Limited-Scope 3(21) Fiduciary, 3(38) Discretionary Investment Manager, and 3(16) Plan Administrator. Attention to process is key, the authors maintain, adding that the outcomes of recent court cases make it clear that plan sponsors and their fiduciary advisors must develop a much tighter fiduciary process, which includes monitoring the reasonableness of fees and revenue-sharing arrangements. The paper includes a section about recent court cases and also provides an appendix for documenting a tight fiduciary process.
