By Jane Meacham

Retirement plan service providers likely will face the most need to change business models among those affected by the U.S. Department of Labor’s (DOL) final fiduciary rule issued in early April. Although adoption of the regulation is more than a year away, many respondents to an industry survey quickly registered confusion, and a sizable number said they plan to adjust their fiduciary status.

The survey was conducted shortly after the final rule was released by the SPARK Institute Inc., a Connecticut-based national retirement advocacy group whose members provide retirement benefits to about 85 million plan participants. About a third of the 117 members responding were unsure whether they should change their fiduciary status in light of the new regulations, which toughen some standards for providers of defined contribution investment advice and products, SPARK said in a press release.

Fourteen percent of respondents to the survey said they will become a fiduciary for the first time under the new DOL regulations, while 23% said they would continue to be a fiduciary. An additional 30% said they planned to remain nonfiduciaries.

“While about half of the members don’t plan to make major strategic business changes, the other half have already decided to fundamentally change their business model, or are still considering whether to do so.” Tim Rouse, SPARK executive director, said. “This level of change will likely take years to play out fully in the market.”

Confusion reigns

The survey answers also showed a degree of uncertainty about the regulation among plan service providers. For example, about 80% said they were still evaluating the regulations’ inherent risks and requirements. Most—75%—said they are watching peers’ moves to incorporate the regulations, and about half are seeking guidance from industry organizations such as SPARK.

Other survey responses gave insight into service providers’ concerns:

• 80% said they want to understand how the regulation will change the competitive landscape;
• 60% seek more information about the impact of the regulations on the advisers with whom they work; and
• 40% are actively looking at undisclosed new products as a result of the regulations.

SPARK said it would begin providing fiduciary workshops in various cities around the United States to address members’ concerns, starting in early May.

Rule changes decades-old definition

As reported, the DOL on April 6 unveiled the long-awaited final rule, which addresses conflicts of interest in the investment services industry by changing the 40-year-old definition of “fiduciary” as it relates to Employee Retirement Income Security Act (ERISA) retirement plans.

The final rule, nearly 7 years in development, comes just shy of a year after the DOL released a proposed version. A 5-month comment period followed the proposal’s release during which the DOL received a reported 3,000 comment letters and held more than 100 meetings with stakeholders.

A side-by-side comparison of the proposed and final versions of the fiduciary rule was published by the DOL, and it is available here on the agency’s website.