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How the Ongoing Evolution of the Fiduciary Rule Affects Small Business Owners

The fiduciary rule has had a bumpy ride in the past few years. After initially going into partial effect in June of 2017 and targeting Jan. 1, 2018 for a full rollout, the move to have all financial professionals who work with retirement plans follow the same fiduciary ethics and standards was postponed until July 1, 2019. Now MarketWatch reports that the Fifth Circuit Court “struck down the Labor Department’s fiduciary rule” in a split decision Thursday, March 15, 2018.

This may not be the end of the fiduciary rule, however. According to Forbes Contributor David Trainer, the fiduciary rule may still make an impact even after being struck down. Trainer writes “While the ruling could end the Fiduciary Rule as law, it cannot erase the awareness the DOL [Department of Labor] raised, nor can it stop market forces leading the business towards a more ethical place.”  

So, what does this mean for business owners? The fiduciary rule wasn’t designed to directly impact you as an owner, but it does affect the financial advisors connected to your business. Here’s a quick rundown of how the fiduciary rule can still make an impression on financial advisors and what that may mean for your business.

Financial advisors for a small business 401(k) plan.

What It Does

According to Investopedia, the fiduciary rule “expands the ‘investment advice fiduciary’ definition under the Employee Retirement Income Security Act of 1974 (ERISA).” In simpler terms, it was designed to give financial professionals who work with retirement plans or offer retirement advice the same legal and ethical standards of a fiduciary.

With this rule in place, retirement advisors would have more responsibility placed on them. According to Investopedia, the rule would leave “no room for advisors to conceal any potential conflict of interest,” which would include stating “all fees and commissions for retirement plans and retirement planning advice must be clearly disclosed in dollar form to clients.”

Even though the rule has been struck down for now, it may not be dead quite yet. Trainer notes in his Forbes piece that the DOL could start on a new rule addressing the matter or request a stay in the Fifth Circuit Court’s ruling. The Wall Street Journal reports that the U.S. Securities and Exchange Commission is also “close to proposing rule requiring new disclosures on financial advice.” Even without going into effect, Trainer suggests that the fiduciary rule has raised awareness of fiduciary responsibility for owners and investors.

What It Means for Owners

Fiduciary responsibility can be intimidating, especially if you aren’t well versed in the legal responsibilities associated with 401(k) management and other financial decisions. The push for the fiduciary rule can help ease this burden by placing more of this responsibility on your financial advisors. However, it may lead some advisors to pull away from managing 401(k)s for businesses because it places more scrutiny on them. 

Fortunately, there are other options that can take a lot of the fiduciary responsibility off your plate. By having a Professional Employer Organization like GMS manage your 401(k), you’re able to offload a lot of the financial risks associated with the plan. This includes financial transaction risk, as we’re responsible for making sure that money gets remitted to the financial institutions. We deduct that money out your payroll and send it directly to Transamerica, our record keeper. We’re also responsible for maintaining plan documents and making sure they stay compliant. If something happens, like an IRS restatement, we’re the ones responsible for applying it, not you.

The exact form of the fiduciary rule may change, but financial responsibility can always be problematic for an owner. Contact GMS today to talk to one of our experts about how we can help your business manage its 401(k) plans so that we can take on that responsibility for you. 

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