More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
In the first of a three-pronged initiative on target date funds, the Department of Labor's Employee Benefits Security Administration (EBSA) and the Securities and Exchange Commission (SEC) released its long-awaited guidance on May 6 to help investors and plan participants better understand the operations and risks of target date funds.
Phyllis Borzi, Assistant Secretary of Labor for EBSA, said in remarks about the newly released guidance at the Investment Company Institute's (ICI) general membership meeting in Washington, on May 7, that "most [plan participants], and even the plan sponsors, maybe didn't fully understand how widely these [target date] funds vary in their structure. So it became quite clear to [DOL and SEC] that we needed to do something to help people better understand."
EBSA says the guidance describes some basic features of target date funds, including the investment mix of such funds, the risks associated with the investments, how target date funds operate, and ways to evaluate a target date retirement fund that will help increase awareness of both the value and risks associated with these types of investments.
The guidance is called "Investor Bulletin: Target Date Retirement Plans."
Phase two of the target date fund initiative, Borzi said at the ICI event, will be a "best practices checklist" for plan fiduciaries to use; the checklist, which Borzi said will be out in a matter of weeks, is designed for small and medium-sized plan sponsors. The third piece of the initiative will include an amendment to the Qualified Default Investment Alternative (QDIA) regulation as it relates to target date funds, Borzi said.
As quite a few mutual fund executives noted at the ICI conference, target date funds are becoming the most popular default option in 401(k) plans. Greg Johnson, president and CEO of Franklin Resources, said at the event that target date funds will become a "bigger and bigger" part of the new money that's flowing into 401(k)s.
Borzi reminded attendees that EBSA is "taking a fresh look" at the definition of fiduciary, and won't be issuing a proposed regulation in this area until later this fall. "We need to look at the fundamental regs that were issued after ERISA, and bring those up to date," she said. Fiduciary duty "is the lynchpin" of DOL's enforcement activities.
EBSA is also sifting through the 700 comment letters that it received regarding its request for information (RFI) on how best to integrate lifetime annuities and other income-generating options into 401(k)s and other employer-sponsored retirement plans.