It seems like every other day there’s another article published about the impact of the DOL Fiduciary rule. These articles vary from “interesting new perspectives,” to “if this Broker Dealer is going fee-only,” “that Broker Dealer is going commission only” and every angle between. It seems everyone wants to talk, even if there isn’t really that much new to say. The latest in this dramatic saga is whether or not the rule will be delayed or not and if so, for how long? Whether or not the rule takes effect as-is or in some changed form, the rule has already made a major impact. We can see it in the acceleration of fee-only offerings from service providers and in the proliferation of fee-only retirement plan consulting models. Rule or not, the industry is forever changed.
Recently, I spoke with an author who wanted to understand what industry insiders felt the future would look like regarding 401(k) investments. You can read the article here, How to Avoid a 401(k) Fiduciary Freak Out. In this piece, I discussed the evolution of mutual funds from traditional retail share classes to an ever growing population of institutionally priced (wholesale priced) versions of the same funds. Ultimately, I think this is all going towards 401(k)-Specific investments. This is still mainly theoretical, but funds like Target Date Funds, structures like Collective Investments Funds or even K or R share classes are already here and are mainly used in qualified retirement plans. Why wouldn’t the natural next step be to create Qualified Plan Only investments, specifically engineered for investors who will be in a tax-advantaged environment for upwards of 30+ years? That seems like the logical next step in this progression.
One thing I found interesting in the article was that the others interviewed were more focused on fee-compression at the investment level. There is a lot of discussion of ETFs as the logical next step. I’m still unconvinced that the advantages of ETFs can’t be replicated and more easily delivered in index funds, but I digress. Towards the end of the conversation, we discussed annuities. The DOL rule, as currently written, seems to have a major dampening effect on the use of annuities in a tax-qualified setting, so IRAs or Qualified Plans.
If you combine my thoughts around investments designed specifically for tax-qualified retirement plans with the need for in-plan income solutions and adherence to the new rules, it won’t take too long…in my opinion…for the insurance companies to come up with a fee-only version of an in-plan annuity. Time will tell if this will come to fruition, but in the meantime we will continue to watch the drama around the DOL fiduciary rule unfold in Washington D.C. and hope to avoid any of the maddening effects of a situation as fluid as this one.