LPL lets more advisers do fiduciary 401(k) business

Strategy is an extension of efforts that began due to the DOL fiduciary rule, observers say.

LPL Financial has relaxed some of the internal qualifications necessary to service 401(k) plans in an advisory capacity on its corporate RIA, effectively permitting more advisers to service plans as a fiduciary.

LPL, the nation’s largest independent broker-dealer, is eliminating its plan, asset and experience requirements for brokers to join the Retirement Plan Consulting Program, the firm’s fiduciary 401(k) group, which houses about 800 advisers. Previously, the firm required brokers work with five defined-contribution plans, $5 million in DC assets under management and have five years of experience in the DC business to serve as a fiduciary.

The new eligibility standards, in place at the end of July, require brokers to have a designation, complete internal training, and use LPL’s Tool Suite or an approved alternative, according to Christina Marschinke, LPL’s senior vice president of retirement plan services.

She said the change is a way for LPL to offer both advisory and brokerage options to advisers and their clients.

“We have about 6,000 advisers at LPL who do plan business in some way, shape or form,” Ms. Marschinke said. “For those who wouldn’t have qualified for RPCP but wanted to engage in a deeper relationship with their client, there were not a lot of options.”

The changes apply only to 3(21) fiduciaries under the Employee Retirement Income Security Act of 1974, which are non-discretionary investment fiduciaries. Requirements to provide 3(38) — or discretionary — 401(k) investment services are unchanged, with advisers needing 15 DC plans, $15 million in assets and 10 years of experience.

LPL doesn’t have a target number for adviser growth in RPCP, according to Ms. Marschinke, who said the firm was “already seeing an uptick” in applications for the group. She declined to quantify the rise.

LPL’s strategy comes as the Department of Labor’s fiduciary rule, which raised investment-advice standards in retirement accounts, transformed how brokerage firms were able to do retirement business. The regulation increased the liability that “generalist” 401(k) advisers — or, those who aren’t specialized in the retirement plan business — posed to broker-dealers.

Firms such as Morgan Stanley and Merrill Lynch overhauled guidelines around how these generalists could do 401(k) business. Similar to LPL’s approach, Merrill Lynch broadened the pool of advisers eligible to receive training to become a designated 401(k) fiduciary adviser.

The DOL fiduciary rule, which went into partial effect in June 2017, was subsequently overturned in court. However, industry observers believe LPL’s strategy still makes sense in light of where the retirement market is headed — toward a greater share of fiduciary business.

However, LPL appears to be stepping back from its specialized 401(k) advisers while catering more to its generalists, according to a retirement executive familiar with the program who requested anonymity.

He pointed to LPL’s plan to shut down its Worksite Financial Solutions platform in September, which is a popular resource for retirement advisers, but which executives said hasn’t provided the necessary return on investment. A few multibillion-dollar retirement groups, including Independent Financial Partners, have left over the past year or two.

Ms. Marschinke refuted the “perception” that LPL is focusing less on specialists.

“We have a large generalist population that needs attention,” she said. “That in no way diminishes our attention on the specialists.”

One current RPCP adviser, who also requested anonymity, sees LPL’s new strategy as a potential way to funnel more assets into its Small Market Solution product, in which LPL’s internal research team delivers fiduciary investment services to small 401(k) plans.

“The focus going forward is small market solutions to the masses,” the adviser said. “Their hope is to garner most of the one-to-two-plan guys’ assets in plans in the SMS system.”

But Ms. Marschinke said there’s no correlation, and that LPL’s decision wasn’t made “to boost product in any way.”