More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
The Department of Labor’s Employee Benefits Security Administration (EBSA) backed off on its controversial fiduciary requirements involving brokerage windows under its fee-disclosure rule 408(b)(2) that had the retirement planning community up in arms.
The industry had complained that the department had ushered in a new requirement on brokerage windows in its original Field Assistance Bulletin (FAB), but on Tuesday EBSA issued a revised Field Assistance Bulletin which is a turnaround from “its position in the old [FAB] under Q&A number 30 that plan fiduciaries have a duty to look at the investing patterns inside individual brokerage accounts and possibly designate some of the commonly held investments,” says Fred Reish, partner and chair of the Financial Services ERISA Team at Drinker Biddle & Reath in Los Angeles. “That is very good news and will be well received by the retirement and investment communities.”
Lynn Dudley, senior vice president of policy for the American Benefits Council (ABC), says the revised FAB “takes a much more practical approach.” The revised FAB “effectively eliminates” several significant fiduciary requirements that were not provided under current law but had been included under Question-and-Answer No. 30 of the FAB as originally drafted, she says, “including requirements that a plan must have ‘a manageable number of investment alternatives,’ monitor for ‘significant investment through a brokerage window’ and provide participant disclosures for any investment selected through a brokerage window by at least 1% of participants to qualify for the safe harbor test.”
But Reish (left) explains that DOL continues to assert that, “where a plan consists solely of brokerage accounts (i.e., each participant must invest through his or her brokerage account), the fiduciaries may have a duty under ERISA to provide a lineup of designated investment alternatives.”
He says that “there was some objection to that concept in the original Q&A 30 and it is included in virtually the same form in the new Q&A 39” under the revised FAB.
What’s more, Reish says, the DOL “continues to say that fiduciaries have a duty to prudently select and monitor the provider of brokerage accounts--in other words, the broker-dealer. That surprised some people, but it seems obvious to me that fiduciaries are responsible for all of a plan’s service providers, including broker dealers, and that job must be done in a prudent manner.”