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Recordkeepers, Financial Wellness and the Fiduciary Rule

Financial wellness programs provide help to participants in achieving their short-, intermediate- and long-term financial objectives — some of that advice is fiduciary and some is not.

A new blog post by Fred Reish explains that while recommendations about repayment of indebtedness, budgeting and management of expenses and the accumulation of savings for unexpected expenses are not fiduciary advice, the recommendations must be reasonable in light of the circumstances (under the laws of most states). Additionally, Reish notes that advice about the level of deferrals to 401(k) plans is not fiduciary advice as long as it is based on an objective standard (such as contributing enough to get the full employer match).

On the other hand, Reish notes that investment advice for participants’ accounts and recommendations of roll-ins and rollovers is fiduciary advice, and those recommendations will cause the recordkeeper to become a fiduciary for those purposes, meaning that they will need to have prudent processes in place to develop and deliver the recommendations. Moreover, in cases where the recordkeeper (or an affiliate) would stand to profit more if a participant agrees to the recommendation, the recordkeeper will need to comply with a prohibited transaction exemption — and that, Reish explains, will usually involve the Best Interest Contract Exemption, or BICE.

Regardless, Reish cautions that recordkeepers must gather the relevant information and make prudent and loyal recommendations where they provide fiduciary advice under a wellness program. In addition to complying with the conditions of the BICE (where applicable), the recordkeeper should also have written policies and procedures, together with supervision, for the development and delivery of the fiduciary recommendations.

If those conditions are satisfied, Reish comments that recordkeepers could provide so-called “conflicted” advice — i.e., advice that would result in the recordkeeper or an affiliate to receive additional compensation.

That said, in cases where the financial wellness program also includes discretionary investment management of participant accounts, the issues are more complex, according to Reish, since the BICE does not provide an exemption for discretionary investment management. In that case, he writes, the recordkeeper will need to either utilize an independent third party investment manager for the discretionary services or will need to use another exception.

“Having worked on programs that offer these services to participants — and, therefore, having given it some thought, I believe that these programs will provide valuable services to employees,” Reish concludes.