More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Fund firms managing employee retirement accounts make it needlessly difficult for plan sponsors to fulfill their fiduciary obligations, a new Dalbar study has found.
The Boston-based firm’s latest quarterly report assessing plan provider websites gives “excellent” ratings to just four of the 49 firms evaluated: John Hancock, Transamerica, ICMA-RC (a provider of 457 retirement plans) and Principal Financial.
“This quarter we found that, across the board, plan provider websites fail to support plan sponsor obligations for ERISA compliance,” Kathleen Whalen, Dalbar’s managing director, told AdvisorOne.
“Although the resources are there, a plan sponsor must do a tremendous amount of investigative work to locate and piece all the materials together in order to make use of the fiduciary support currently available on plan sponsor sites,” she added.
In performing its analysis, Dalbar says it put itself in the position of a “newbie plan sponsor” desperately looking for a middle path between having to become a full-fledged ERISA expert and the risk of breaching fiduciary obligations by not knowing enough.
In other words, because the business of plan sponsors does not typically make them experts in financial regulations, plan sponsors are looking for the guidance needed to remain compliant, yet fiduciary tools offered by provider websites suffer a number of deficiencies.
First, these tools are often not visible to their intended audience. Compliance calendars and timelines in 65% of cases were found to be 2 to 5 clicks deep in the website, Dalbar found.
Second, fiduciary resources that websites offered are often not specific to a sponsor’s plan, without an easy way to decipher what does and does not apply to the sponsor’s plan or how to translate a calendar-year-based schedule to a different timetable.
The Dalbar report offers relevant illustrations, including a positive Lincoln Financial Group compliance reminder that lists deadlines right on the sponsor’s landing page, thus making it easy for weary compliance managers.
In contrast, some website list fiduciary resources in some sort of “library” format without “connecting the dots,” enabling a sponsor to click on “hot topics” or “plan tools,” but failing to lay out a strategy that plan sponsors can easily follow to fulfill their obligations.
Another common problem is the failure to include relevant resources, such as templates, forms and sample documentation. The Dalbar report, for example, shows a well-organized monthly administration calendar laying out steps, but not offering plan sponsors the ease of clicking on needed resources they must search for elsewhere.
A lack of interactivity was another common problem, with 67% of compliance calendars presented in PDF format, thus preventing plan sponsors the ease of integrating compliance calendars with their Microsoft Outlook calendars.
Beyond its website evaluation, the Dalbar report offered a brief editorial, warning of a future compliance danger lurking on provider websites—specifically use of the words “fiduciary” and “advisor.”
While compliance officers at fund firms have long ago banned words such as “guarantee,” “safe,” “protect” and “secure,” no legal actions as yet have added “advisor” and “fiduciary” to the hit list.
But the terms are deceptive, Dalbar says, because they imply the investment firm is acting as a fiduciary or advisor when it is solely the plan sponsor that holds these legal duties. Warns Dalbar:
“The misleading use of terms containing the words ‘fiduciary’ or ‘advisor’ are in common use and will stop immediately, if there is regulatory action or litigation. The evidence that these and other terms are misleading the public is overwhelming and would be indefensible, if challenged. As a start, websites should be examined and cleansed of potentially misleading use of these terms.”
Read Plan Sponsors Focus on Fee Disclosure Rules on AdvisorOne.