From the February 2007 issue of Investment Advisor • Subscribe!

February 1, 2007

Clear Road Ahead

Commonwealth's retirement platform keeps advisors compliant with ERISA and PPA

As the Department of Labor and Congress zero in on disclosure of fees associated with qualified retirement plans, the independent broker/dealer Commonwealth Financial Network recently unveiled a new retirement platform, called Preferred Portfolio Services Retirement Solutions, which allows advisors to provide full transparency and disclosure to their corporate clients and plan sponsors.

The retirement platform, launched last October, is an offshoot of Common-wealth's fee-based program, Preferred Portfolio Solutions. Timothy Nihill, manager of retirement products and services at Commonwealth, says the open architecture retirement platform "is more fiduciary fit," because it discloses the fees being charged, as well as how fees are handled, and because it eliminates conflicts of interest with payments to advisors. "Top to bottom, there's no question from the plan sponsor on who's getting charged what and where the money is going," he says.

In building the platform, Common-wealth joined with Benefit Street, a recordkeeper in San Ramone, California, to coordinate the handling of fees, Nihill says. When considering normal fund expenses--like trails coming from mutual funds and subtransfer agency fees (which Nihill says are now coming under scrutiny by regulators)--"we take those monies and use those to offset plan costs to the plan and the participant," he says. This ensures Commonwealth is in line with ERISA rules that state 12b-1 fees should be used for the benefit of the plan and plan participant. "This platform does that," Nihill says. When the retirement plan is "presented to the client and plan sponsor, the plan sponsor sees the recordkeeping fee, the custody fee, advisory fee, and the money going back to benefit the plan and plan participant."

Complying With PPA

Since launching the platform in October, Common-wealth has seen $200 million in proposal activity, meaning "advisors who have started to initiate the conversation with clients and offered a proposal to the plan sponsor," Nihill says. Such activity is warranted, he believes, because the open architecture platform "is ahead of the curve," and gives Commonwealth's affiliated advisors a leg up over the competition. The platform's open architecture environment also complies with new provisions under the Pension Protection Act (PPA) in that it flattens an advisor's compensation. Under the PPA, advisors can only give customized investment advice if they flatten their compensation, meaning either charge a flat dollar amount or a flat percent of assets, Nihill explains. So no matter what fund share an advisor chooses--an A or C share--their compensation cannot vary.

Because Commonwealth is "offsetting the sub-TA and 12b-1 revenue, we are flattening compensation for the advisor," Nihill says. Advisors need to flatten compensation, "therefore we can give them customized investment advice to the plans and their participants," he says. "Other advisors out there who are tied to a company that has their own products is tied to generating advice through a computer model."

Washington Bureau Chief Melanie Waddell can be reached at mwaddell@investmentadvisor.com.

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