More On Legal & Compliancefrom The Advisor's Professional Library
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
- 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.
Labor Secretary Thomas Perez said Tuesday that the Department of Labor would release “in the coming months” its fiduciary redraft, stating that it was a “very important rule” and that DOL would continue its “due diligence” on the rulemaking.
Perez confirmed that the DOL was indeed moving ahead in reproposing its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act — what he called the “rule to reduce conflicts” in the retirement marketplace — during a conference call with reporters to announce a newly proposed rulemaking regarding a 401(k) fee disclosure guide.
While there has been speculation in the retirement planning community as to whether DOL would indeed move ahead on the rule this year, DOL stated in its regulatory agenda its revamped rule would come in August.
The fee-disclosure guide plan would amend DOL’s rule 408(b)(2) to “require covered service providers to furnish a guide to assist plan fiduciaries in reviewing the disclosures required by the final [408(b)(2)] rule if the disclosures are contained in multiple or lengthy documents.
"This amendment will affect pension plan sponsors and fiduciaries and certain service providers to such plans,” DOL says.
DOL says such a guide “would help employers navigate sometimes complex and lengthy fee disclosures provided by companies that manage 401(k) type retirement plans.” These disclosures were mandated by a 2012 final rule published by the department’s Employee Benefits Security Administration.
Perez said on the call that such a guide “moves us further down the road to increase transparency and reduce conflicts of interest.”
Phyllis Borzi, head of EBSA, said during the conference call that when EBSA issued its final 408(b)(2) regulation, EBSA said that it would be “watching the implementation” of the rule. “We are particularly concerned that small employers that are fiduciaries may not be getting the full benefits of the fee disclosure regulation,” she said.
Borzi says the proposal comes in two parts. First, EBSA is proposing to require service providers to provide plan fiduciaries with a roadmap so that they can determine the compensation of the service provider, any recordkeeping fees, the service provider’s sources of income, as well as payments to third parties.
“We are suggesting that the guide has to identify the document where this information is disclosed, and even the page number, so that the information can be found quickly,” she said.
The proposal has a 90-day comment period.
The second part of the plan includes EBSA engaging a contractor to conduct “targeted focus groups with small employers to get feedback about their experiences” with the new 408(b)(2) rule, Borzi said. She said the focus groups should “provide valuable information” on whether there should be a guide.
Fred Reish, partner and chairman of the financial services ERISA team at Drinker Biddle & Reath, says that the guide addresses one of DOL's three concerns about the 408(b)(2) disclosures. The guide, he says, addresses the first one, "that the disclosures are hard to locate and understand" because they are in multiple or lengthy documents, he says. "That most affects small companies, because they tend to be thinly staffed and lack the depth and breadth of personnel to spend the time to go through those materials in a sophisticated way."
However, Reish says he expects "pushback from broker-dealers and recordkeepers" because "those two groups tend to use multiple documents to make disclosures and therefore will bear the brunt of the compliance cost."
The second concern is that "some providers are using very wide ranges of compensation to make their disclosures," Reish says. "In other words, the ranges are so wide that the information isn’t particularly helpful to plan sponsors." The third concern is that "the information—about services or compensation—is not plan specific, as required by the final regulation."
Check out Is DOL Fiduciary a ‘Solution in Search of a Problem?’ Consider the Data on ThinkAdvisor.