Open Architecture DOL Rule | Capital Group

Capital Group Policy Spotlight

November 03, 2016

DOL Rule Does Not Favor Open Architecture

Capital Group senior counsel Jason Bortz explains why the Department of Labor conflict of interest rule does not favor open architecture over single-fund-family solutions. Watch the video to see why there are many prudent reasons a fiduciary might choose a single-fund-family solution.



Jason Bortz


Jason Bortz: We sometimes get questions about what the new Department of Labor rule means for single-fund-family solutions. Does the rule require financial advisors to use open architecture solutions? I think the short answer is the rule really doesn’t say anything at all about open architecture versus an all-proprietary solution.

This issue commonly comes up in the 401(k) recordkeeping space where some small plan recordkeeping solutions are all-proprietary. It also comes up sometimes in variable annuity products that are used in IRAs where all of the sub-account investments are from a single fund family, and it comes up a little bit in the 529 college savings space where you sometimes see a single-fund-family solution.

This rule really isn’t about open architecture versus closed architecture. It’s just not what this is about. It’s about broadening what’s considered fiduciary investment advice and then addressing perceived conflicts of interest. In fact, the Department of Labor calls it their conflict of interest regulation.

Really where we stand with open architecture is current law. Single-fund-family solutions are incredibly common today. You see them in SIMPLE IRAs: very typical to be a single-fund-family solution. As I mentioned, small plan 401(k) recordkeeping solutions: often single-fund-family solutions.

Why? I think a reasonable fiduciary can come to a decision that there are good reasons to go with a single fund family. First, a single-fund-family solution tends to be easier to understand for investors. They don’t have to compare different managers. The fund offerings from the family tend to fit together in a coherent way. Often pricing for a program as a whole is more manageable and more reasonable where it’s a single-fund-family solution offered by an affiliate. It’s just less expensive. The 401(k) is the classic example.

The Department of Labor guidance says all of those are completely reasonable considerations when a fiduciary is exercising their judgment. It’s pretty clear this rule doesn’t require use of open architecture. In fact, it really has no bearing on that issue at all. Advisors can continue to use single-fund-family solutions where they feel comfortable doing so.

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