What is the 5-part test & why should Plan Sponsors care?

So after over a half decade and numerous iterations, the “Fiduciary Rule” has been thrown out by the 5th Circuit Court of Appeals.  What does that mean for Plan Sponsors who are trying to run a business and therefore turn to an expert to help them manage their retirement plan responsibilities?  In technical terms, the old five part test that determines whether an advisor serves as  a fiduciary for non-discretionary investment advice (think 401K, 403b, 457b) is the law of the land again.

In the lead up to the fiduciary rule recordkeepers and broker/dealer firms were going through numerous contortions to continue their business models.  Look no further than Fidelity’s “point in time” fiduciary.  They have subsequently backed away from this due to the rule being vacated.  If you look at the broker/dealer world where soft dollar compensation is the rule that govern’s the land for product placement, firms who took bold positions like Merrill Lynch, UBS, Wells Fargo and others are now reconsidering those options now that they don’t have to provide unconflicted advice to investors.

In a series of posts, we will look at the old five part test and what makes a fiduciary or not.  If your firm is working with a Mesirow, Guidedchoice, Morningstar or other check the box fiduciary service, there is a decent probability that the advisor you use is providing little more than education.  Unfortunately, that education is probably wildly overpriced relative to the market and what you could receive from a firm that is not dually registered and always serves in a fiduciary capacity.