PenChecks Blog

Mid-Year State of the Industry Review

Here we are, already half-way through 2017. It’s been an interesting six months, to say the least, especially with the implementation of the new Department of Labor (DOL)
fiduciary rule. As I scan the horizon, I see many issues that need addressing, but two in particular stand out for me.

1. Lack of educated employees.
When I entered the industry a few decades ago, we were committed to learning about all the rules and regulations. In fact, our employers insisted on it. These days, I don’t see the same level of commitment throughout our industry. It seems to me that as the old guard retires, we’re not training the new generation of employees at the same level as before, and aren’t preparing them to take on leadership roles in the industry. When we look at the various reasons for acquiring a TPA firm, the #1 issue is the acquisition of talent.

A few years ago, the IRS created the ERPA (Enrolled Retirement Plan Agent) program.
After passing two exams, retirement plan professionals received the ERPA designation – similar to an enrolled agent in the accounting world – which signified they were qualified to practice before the IRS on certain retirement plan issues. As an industry, we did not embrace ERPA with as much enthusiasm as anticipated, and the IRS discontinued the program in February 2016. Current ERPA holders still retain their designation, and may continue to practice before the IRS. But their ranks are not growing.

In my opinion, the lack of interest in this and other certifications indicates we may not be devoting enough attention to truly educating our employees as successors in leadership roles. This is an area that needs to change if we are to uphold our fiduciary responsibilities and professional standards while continuing to provide the highest level of professional services.

To help address this need, PenChecks Trust sponsors six ASPPA QKA scholarships and six NIPA APA scholarships for industry professionals each year. These pay for all the exams required to attain the respective designations, plus the first year of membership dues in each organization. These represent a start that elevates a need, but as an industry we need to do more to encourage retirement professionals to become credentialed, as this will enhance the level of professionalism while ensuring a higher standard of performance. It also gives those professionals the tools to become industry leaders.

For employers, having credentialed employees makes their companies stronger and more credible. In a highly-regulated business, having well-trained employees also reduces the risks associated with making a costly mistake.

2. New DOL fiduciary rule.
The new fiduciary rule is already impacting our industry, and while some of the changes are positive, I fear they may lead to a further commoditization of our products and services. The fallout could force mid-market investment advisors out of the market, thereby limiting competition and creativity.

Employers will likely have fewer plan choices, and fewer options in how they want to administer their plans. They may even end up with fewer choices in the investment field. The large platform providers like Fidelity and Vanguard may be able to offer greater investment choices. However, because of their size, it isn’t difficult to see what will happen – that fees could be further commoditized, placing the small- to mid-size platforms in a difficult position because they may not have the economic clout to effectively compete. I hope I am proven wrong.

Furthermore, every new rule, such as the DOL’s latest, has unintended consequences that can disturb, distort and penalize the ability for our industry to grow and be financially successful while delivering an outstanding product to employers and their employees. I support increased transparency and disclosure, as it makes it easier for employees to understand their plans and make informed investment decisions. But this must be accomplished without putting undue burdens on investment advisors that degrades the advice that would otherwise be available, or worse, will result in employees and participants receiving no assistance at all. It also should be done in a way that doesn’t restrict the creativity of the best and brightest members in the retirement community.

By the same token, I feel some of the regulations may have gone too far. For example, failure to distinguish the fee structure in a mega-plan versus the fee needed in servicing an individual client has unintended consequences for advisors and especially participants.

If a participant in a large, low-fee plan asks the advisor for individual advice, the advisor cannot charge more than the participant’s plan fee. In most cases, the advisor will not provide advice, forcing the participant to find another advisor who will likely charge them a lot of money. We need to find better ways to supervise and monitor what’s going on, so that everyone gets treated fairly.

I shudder to think that perhaps the massive level of regulations hitting all industries represents a deliberate strategy to force the socialization of American enterprise. Regardless of the intent, I don’t doubt that our industry will face even more regulations in the near future. Therefore, if we are to continue to grow as an industry, we need to continue working with our elected officials to help them better understand the industry and how we can help America’s workers do a better job of saving for their retirement.

Peter E. Preovolos
President and CEO
PenChecks Trust

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