According to a report, Fidelity, the largest 401k provider in the country, will now act as a plan level investment fiduciary to certain 401k plans. However, many advisors feel as though Fidelity has an inherent conflict of interest in acting in this capacity which may expose plan sponsors to a violation of the new DOL Fiduciary rule. The new DOL regulation aims to reduce/eliminate conflicts of interest in providing investment advice to retirement investors.
Here is where the potential problem lies. Fidelity offers an “open architecture” 401k platform, which allows Fidelity funds and non-Fidelity funds to be utilized as plan investments. With Fidelity offering hundreds of their own proprietary mutual fund products, logic suggests it will be difficult for Fidelity to be unbiased when determining whether a Fidelity or non-Fidelity fund is in the plan’s best interest. Many advisors think this is a poor business practice for Fidelity to roll out, as it may confuse plan sponsors into thinking that they are exposed to less risk than they are, and potentially result in Fidelity not serving their clients best interest. At the very least, Fidelity may have just created an appearance of a conflict of interest, which could be problematic.
The fiduciary investment advice which Fidelity will provide will only occur at a “point in time” (at plan set-up) and they will NOT be providing on-going monitoring of plan investments, which will be a duty left to plan sponsors.