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Fiduciary Rule

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FIDUCIARY FOCUS

DOL encourages investors to ask advisers if they are fiduciaries

Agency provides a litany of questions for consumers as well as FAQs on technical compliance for advisers

Investors should press their financial advisers about whether the advisers are fiduciaries, how much they charge and whether they get paid more based on the investments they recommend, the Labor Department said Friday.

In a 16-page document posted on the DOL website, the agency provided a litany of questions for investors to pursue with their advisers based on the requirements of an investment advice rule that will be implemented beginning in April.

The DOL also posted Friday a 17-page document containing 35 questions on technical compliance topics that have been raised by financial firms. They cover how investment advice is defined in various interactions with clients and the difference between advice and education, among other areas.

These frequently asked questions follow a set of FAQs released Oct. 27 that focused on prohibited transaction exemptions.

The regulation requires financial advisers to act in the best interest of their clients in 401(k), individual retirement accounts and other qualified accounts.

Among the 22 questions the agency recommends investors ask their advisers: Will you acknowledge in writing that you are a fiduciary when you make investment recommendations to me? What fees and expenses will I be charged? Do you make more money if I buy some investments instead of others? What are your reasons for recommending a rollover from my current plan or IRA?

“Best-interest advice is a crucial component of a dynamic, profitable investment marketplace that meets the needs of workers and retirees,” DOL assistant secretary Phyllis Borzi wrote in a note accompanying the FAQs. “The Conflict of Interest Rule offers consumers a new level of confidence when working with investment advisers, and levels the playing field for the many advisers who have been giving best-interest advice all along.”

A fiduciary advocate praised the DOL's outreach to consumers.

“This is an excellent first cut at boiling 1,000 pages [of the rule] down to 16 pages,” said Knut Rostad, president of the Institute for the Fiduciary Standard. “But one client in 1,000 will read the FAQs. Advisers need to use this document to boil it down to two or three pages that are accessible and meaningful to investors.”

Financial industry trade associations are urging the incoming Trump administration to delay the regulation and then work with industry to shape a new fiduciary rule that covers all retail accounts.

Opponents assert that the DOL rule is too complex and burdensome and creates litigation risk for advisers that will drive up the cost of advice. Proponents say requiring brokers to act in their clients' best interests is necessary to prevent them from selling high-fee investments that erode retirement savings.

Rep. Joe Wilson, R-S.C., recently introduced legislation that would delay the rule for two years. It likely will get through the Republican-controlled House but faces a potential filibuster by Senate Democrats.

Given the difficulty of repealing and replacing — or even delaying — a rule that is already effective, it's likely that at least parts of the rule will survive.

The FAQs explained for consumers how one of the key provisions of the rule, the so-called best-interest contract, would work. The legally binding agreement allows advisers to charge commissions and collect other revenue that varies by product as long as the adviser agrees to act in the best interests of the client.

But the FAQs caution investors that they can't sue their adviser just because an investment loses money.

“The best-interest standard focuses on the financial adviser's behavior at the time he or she makes a recommendation to you, rather than how the investment in your retirement account turned out,” the document states. “The adviser's obligation is not perfection, but rather to make recommendations that adhere to a professional standard of care and that are based on your financial interest, without regard to his or her own competing financial interests.”

Getting It Right - Know Your Fiduciary Responsibilities – Phoenix, AZ

A FREE Retirement Plan Compliance Assistance Seminar

for Small Business

U.S. Department of Labor, Employee Benefits Security Administration

Thursday, February 15, 2017 from 9:00 AM to 4:30 PM (MST)

 Strong fiduciary oversight and protecting workers’ benefits is one of the highest priorities of the U.S. Department of Labor.  The best way to protect workers’ benefits is by preventing problems before they start.  Our compliance assistance program – Getting It Right - Know Your Fiduciary Responsibilities – will increase awareness and understanding about basic fiduciary responsibilities when operating a retirement plan. 

Getting it right, however, can be challenging.  This is especially true for small and medium sized employers who have limited time, resources, and access to professional help with benefit programs.

Specifically, getting it right means:

Understanding your plan and your responsibilities;

Carefully selecting and monitoring service providers;

Making contributions on time;

Avoiding prohibited transactions; and

Making appropriate disclosures to plan participants and filing annual reports to the government on time.  

Our program combines free seminars around the country, educational materials, and a dedicated webpage on EBSA’s Web site.  With the valuable participation of our partners, Getting It Right will offer a helping hand to those who want to do the right thing. View or download the agenda.

We hope you will join us at this upcoming seminar.  Helping fiduciaries to get it right benefits us all.

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401k SAFE Article - Servicing 401(k) Plans

Check out this recent article that 401k SAFE put out regarding servicing 401(k) plans....

I will never forget the client’s reaction when she got audited by the DOL. This was fortunately not a 401(k) client, but from our HR Outsourcing days.

We had repeatedly warned that she was not administering her payroll over time correctly. I even went as far as sending our in house labor attorney to her office to explain the potential consequences. 

When the DOL knocked on the door and 6 months later she had to write a very large check she was furious. 

I reminder her that we did everything we could to warn her and she said, “Why didn’t you shake me?”

At that point, I understood exactly what she meant. It would be like if one of your kids was getting ready to walk into the street in front of oncoming traffic, you wouldn’t calmly text them to explain the consequences. You would physically stop them from getting in harm's way.

The majority of your 401(k) clients and prospects aren’t worried about their 401(k) plans, and I have witnessed how some of the largest 401(k) producers in the country understand this and have capitalized on it. One of the advisors we have had the privilege to work with has approximately $100M in closable plan inventory. He maintains this volume of closable business, because he “shakes people.” Lots of them! 

And believe it or not, you can “shake people” if you have their best interest at heart. He’s not communicating fear, he’s communicating the things they don’t know or understand. He has conviction when explaining their fiduciary responsibilities, and the potential consequences if they don’t take action. He “shakes” them and the apples start to fall out of the trees. 

The 401(k) market offers unlimited opportunities to “shake” people.

If you have year-end deals you are trying to close, we can help. We have had amazing success in closing large plans with advisors that are capitalizing on our 15 minute “401k Safe Client Fiduciary Portal” web demo. If you have a plan on the fence and you can “shake” a prospect or client into sitting still for 15 minutes we can help you close the deal. Reply to this email, and we will schedule a a call at your convenience to walk you through our web demo.

Lee and Jim

Contact Information:

Lee Lichtenstein- Direct Dial: (205) 914-8108, Email: llichtenstein@401ksafe.com

Jim Sharp-           Direct Dial: (205) 914-0121, Email: jsharp@401ksafe.com

Patty Bell-            Direct Dial: (602) 684-1450, Email: pbell@401ksafe.com

https://www.401ksafe.com/