More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
The Office of Management and Budget (OMB) has received a proposed regulation from the Department of Labor regarding the development of a “Guide or Similar Requirement for Section 408(b)(2) Disclosures,” which could spell additional expense for retirement plan service providers, says ERISA guru Fred Reish.
Reish (left), partner and chairman of the Financial Services ERISA Team at Drinker Biddle & Reath in Los Angeles, notes that while it’s not the DOL’s re-proposed fiduciary rule, which he expects to be at OMB in a matter of weeks, this proposed fee-disclosure reg “could have a material impact on the retirement plan community.”
While the retirement planning community won’t know what the proposed regulation says for about three months—when the OMB approves and releases the proposed regulation—Reish says, DOL “has previously given us an idea about their thinking.”
When the DOL issued the final 408(b)(2) regulation last February, it included a “Sample Guide to Initial Disclosures,” Reish says, which was not mandated, “but instead was offered as an aide.”
The DOL explained in the preamble to the final regulation that “Although the Department is not adopting such a requirement [for a guide] at this time, the Sample Guide published today may be useful, on a voluntary basis, to covered service providers as a format to assist responsible plan fiduciaries with the required disclosures.”
Reish says that he and his colleagues at Drinker Biddle have heard that, “based on the DOL’s review of 408(b)(2) disclosures, the Department has concluded that plan fiduciaries may, in some cases, have difficulty understanding the required disclosures because of the lengthy, technical and/or multiple disclosure documents that are being distributed.”
As a result, he says, “we believe that the proposed regulation may require a guide (or table of contents) for the 408(b)(2) disclosures.”
The Sample Guide provided for the disclosure of information at a detailed level. For example, Reish explains, “the Guide had references to page and section numbers in specific documents, and under indirect compensation, the Guide provided a number of categories, including one entitled ‘Compensation ABC will receive from other parties that are not related to ABC’ (‘indirect compensation’).”
If the DOL’s proposed regulation is similar to the Guide, Reish continiues, and “if, for example, a broker-dealer makes disclosures by delivery of prospectuses, that would require references to each of the mutual fund prospectuses, together with the section and page numbers where the description of 12b-1 fees and other compensation appear.”
Most covered service providers, Reish says, “are not providing disclosures that are that detailed or specific,” which means that “this could be a big change, which could result in additional administrative work and expense.”