New Fiduciary Rule to Have Minimal Institutional Impact
The “conflict of interest” rule unveiled Wednesday by the US Department of Labor will likely have little impact on institutional plan sponsors, according to Russell Investments.
Many of the proposals that had been troubling to pension plans, including a requirement that would have affected how employers can engage with employees regarding 401(k) defined contribution plans, were left out of the final fiduciary rule, said Jean-David Larson, director of regulatory and strategic initiatives.
“At first glance it doesn’t appear to be the case that the rule will have a major impact,” Larson said in an interview with CIO. “The key things that were concerning plan sponsors appear to have been addressed.”
The rule—the first meaningful change to US retirement advice regulations since the 1974 Employee Retirement Income Security Act (ERISA)—is intended to protect the interests of retirees, said Labor Secretary Thomas Perez in a speech at the Center for American Progress on Wednesday.
“A consumer’s best interest must now come before the advisor’s financial interest,” Perez said. “Today’s rule ensures that putting clients first is no longer simply a marketing slogan. It’s the law.”
However, Larson said the existing ERISA standards already ensured institutional plan sponsors behave as proper fiduciaries.
“The institutional market has been well-settled,” he said. “It’s a well-established area of the law.”
Plan sponsors, for example, are already under fiduciary obligation to make investments that are in the best financial interests of plan participants. Therefore Larson said it was unlikely the rule will cause any changes in how 401(k) plans are set up.
“Institutional investors already look across the risk return spectrum,” he said. “Obviously fees are critical.”