More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
This year, as budget makers in schools across the country decide whether the football team needs new uniforms or the gym really deserves to be repainted, they have one more item to add to their lists: How to deal with a new regulation, effective January 1, 2009, which is likely to radically change the landscape for public education institutions that offer 403(b) retirement plans.
"There are already budgets to think about because new teachers have to be hired, and then on top of it all, they're going to have to contend with new regulation. These guys need help," says Thomas Hogan, senior VP and head of MetLife Resources, a division of New York-based MetLife.
This is the first major overhaul of the rules governing 403(b) plans at public educational institutions and certain not-for-profit organizations that are not subject to the Employee Retirement Security Act (ERISA), according to Hogan. The rules are meant to institute risk management controls to bring some order to the rather unruly world of 403(b)s.
"The old 403(b) world was really the wild, wild west," Hogan explains. "In many instances, you could have 15 vendors or providers in a given school district. Now, someone in the school district who is in charge of all this is thrust into the position of being a quasi-plan sponsor, charged with managing the risk and making it finite."
For financial advisors like Joshua Gottfried, a partner at Levine, Gottfried and Somberg in Glastonbury, Connecticut, who's an IAR with Commonwealth, the new regulation is very welcome. He notes that 403(b) plans have not been subject to the same kind of compliance as their 401(k) cousins, but now schools must have a written plan in place; specify all rules to their employees; and oversee transfers and exchanges between providers.
"Schools will have to monitor IRS requirements, so this is a huge overhaul," Gottfried says. "Schools are also going to have to decide whether they're going to do all this in-house or hire consultants, but the question is who will pay?"
Most school finance officers do not have the know-how to deal with the new regs and their requirements, Hogan says. As such, they need a complete solution, which is why MetLife Resources has launched a new product that is specially geared toward providing end-to-end service for employers faced with the complexity of the new 403(b) regs.
ExpertSelect is MetLife's 403(b) solution that makes a broad range of investment options available to employers in the K-12 public school market. The product features a pre-selected set of mutual funds that invest in an array of asset classes and that have been subjected to Morningstar's quantitative and qualitative evaluation. Participants in a 403(b) plan can choose from this list to build a well-diversified portfolio.
ExpertSelect is part of MetLife's holistic approach to the non-ERISA 403(b) universe, Hogan says. The fund lineup is the first step in the process, which also includes advisory services as people accumulate more wealth in their portfolios, and a variable annuity product for those keen to generate guaranteed income during retirement.
"In many instances, employers in the non-ERISA marketplace are really taking the regs as an opportunity to create a fresh start toward helping teachers plan for retirement," Hogan says. "In some school districts, there are business administrators who have been able to focus on this more, while others haven't thought about it at all. We're at the start of a new wave and our aim is to give these people as much as information as possible and help them as they peel back the layers of the onion."
When the new regulations take effect, there will be a lot of money sitting in 403(b) plans that are no longer approved within certain school districts, Gottfried says. The owners of these orphaned 403(b)s will be looking for help consolidating their accounts, and for this, the "path of least resistance" may well be through vendors that offer a holistic package to 403(b) plan participants. However, any such package must include an advisor qualified to provide the guidance that plan participants need.
Advisors who alert their clients to these changes will have a better chance to play a role in the future management of these accounts, Gottfried says, but right now, "I don't think that there are enough advisors who have an expertise in this," he argues.