Welcome to Financial Advisor IQ

Morgan Stanley Offers Small 401(k) Compliance Service

March 13, 2017

Despite uncertainty about the fate of the Department of Labor’s fiduciary rule, Morgan Stanley is introducing a program to help its advisors comply with it when servicing small 401(k) plans, InvestmentNews writes.

The product, dubbed ClearFit, will let all of the wirehouse’s more than 15,000 brokers, including non-fiduciary advisors, act in a fiduciary capacity with small 401(k) plans, according to Eric Garofalo, executive director of corporate retirement services at Morgan Stanley, the publication writes.

To achieve this, the brokerage has partnered with retirement plan record keeper Ascensus, which will handle administration and record-keeping, while Morgan Stanley will assume fiduciary responsibility — taking the onus off its brokers, InvestmentNews writes.

Morgan Stanley will offer an allocation of 18 collective investment trust funds with an unweighted investment fee of around 0.38%, a company spokeswoman tells the publication. Ascensus’s base fee is $3,950 for the first 25 plan participants, with additional participant fees commensurate with plan size, according to InvestmentNews.

Prior to this program, only Morgan Stanley’s roughly 300 retirement specialists could sign fiduciary advice agreements with 401(k) plans, according to the web publication. The non-specialist advisors will now be able to work with 401(k) plan clients on commissions, through a partnership with a retirement specialist or using ClearFit, the Morgan Stanley spokeswoman tells InvestmentNews. The product will be available to retirement plans with less than $10 million in assets, according to the publication.

(iStock Photos)

Morgan Stanley’s approach — taking on fiduciary responsibility from its brokers — “may be a little bit unique,” Bruce Ashton, a partner at Drinker Biddle & Reath, tells InvestmentNews. Record keepers have been outsourcing fiduciary responsibility, but it usually went to investment advice companies such as Morningstar Investment Management and Envestnet Retirement Solutions, he tells the publication.

Meanwhile, it’s still unclear whether the fiduciary rule, which purports to require retirement brokers to put clients’ interests first, will get implemented as planned next month. The DOL has proposed a 60-day delay of the rule and is seeking public comment on the proposal until March 17, following a memorandum from President Donald Trump directing the agency to review it.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.