The DOL’s Conflict of Interest Rule; to be or not to be that is the question.

As with many in the retirement plan industry, the team at FSMA is under the impression that the April 10th effective date for the DOL’s Conflict of Interest Rule, which is also referred to as the Fiduciary Rule, is fluid to say the least.  We don’t know what the Trump administration or the courts are going to do, if anything.  And if we sit around waiting for something to change, the Rule will go into effect as submitted.  What we do know is this…regardless of what direction legislative and judicial actions take in this regard; the cat is out of the bag so to speak.

Awareness of the “Best Interest” advice concept has exploded

Plan sponsors have become aware in a more concise way of their investment advisors’ fiduciary status. For those advisors that already embrace a fiduciary identity, the best interest principle espoused in the Rule and its conflict of interest focus are just PAR for the course.

Advisors that have not embraced the protocols necessary to prove they serve their clients’ best interests, however, will find it difficult to sustain their fees, maintain a competitive edge, and satisfy their clients’ changing procurement practices.

Vendor selection and retention methods are being transformed

Plan Sponsors are turning to proven service and supply chain management methods when making their hiring decisions for investment advisors, administration services providers, and the like.  Service supply chain management techniques focus on 5 primary aspects of the purchasing decision.

  • People
  • Processes
  • Programs
  • Plant (i.e. facility/structure)
  • Planning and control systems

When making vendor hiring decisions, retirement plan fiduciaries should focus their due diligence in these 5 primary areas.  In fact, it’s even critical for the sake of making a defensible hiring decision.

Ask lots of questions

Try asking for specifics from your prospective or existing advisor:

  1. Who works with them?
  2. What are their credentials?
  3. Any registered complaints?
  4. What’s their skill/expertise?
  5. What processes does the firm have in place to ensure service delivery, governmental compliance, and fiduciary standards of care?
  6. What programs does the firm specialize in and are they conducive to what you need?
  7. Where are their offices, what is their technology/cybersecurity practices?
  8. How do they get paid, are there conflicts of interest, how are they managed?
  9. Are they audited, have independent third party reviews?
  10. Is their system of internal controls automated?

FSMA is helping plan sponsors cut through their information overload AND is working with advisory firms to present their organizations in a format that is easy to understand, that’s built on a solid foundation of disclosures, and matches professional procurement buying protocols. The FSMA Procurement and Risk Rating (PAR) report is designed to be a significant resource to plan sponsors for use during the hiring of any provider. A PAR saves both time and money. It simplifies the entire hiring process.

Plan sponsors are turning to PAR

Ask your advisor or prospective new service provider if they have a PAR report. The FSMA PAR report is designed to be a significant piece of the hiring decision of any fiduciary service provider. This comprehensive, plan sponsor oriented PAR report provides detailed quantitative and qualitative information about the advisory firm. Firms that undergo a PAR review submit to an in depth analysis of their actual service delivery mechanisms.

So not only can a plan fiduciary feel confident that an independent 3rd party has verified in good faith, with knowledgeable expertise, that the information provided by an advisor is appropriate, but we’ve actually conducted a study of the advisor’s service delivery history as well.

Learn more about PAR

If you would like more information about how a PAR report can help identify quality investment advisory firms please reach out to FSMA directly.

If you are a fiduciary services provider, get more information
about FSMA’s PAR report.

Plan sponsors join FSMA and receive cost saving benefits!

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Author: fsma

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