More On Legal & Compliancefrom The Advisor's Professional Library
- Code of Ethics Rule The Code of Ethics Rule, found in Rule 204A-1, uses severe consequences for violation to help ensure investment advisors will do the right thing.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
The Department of Labor published Wednesday a request for information on the use of brokerage windows, self-directed brokerage accounts and similar features in 401(k)-type plans.
Some 401(k)-type plans offer participants access to brokerage windows in addition to, or in place of, specific investment options chosen by the employer or another plan fiduciary, DOL explains. These “window” arrangements can enable or require individual participants to choose for themselves from a broad range of investments.
The RFI, which appears in the Aug. 20 edition of the Federal Register, includes the following questions: the scope of investment options typically available through a window; demographic and other information about participants who commonly use brokerage windows; the process of selecting a brokerage window and provider for a plan; the costs of brokerage windows; and what kind of information about brokerage windows and underlying investment options typically is available and disclosed to participants.
Comments are due Nov. 19.
The request comes after the DOL received questions about brokerage windows after publishing its 2012 regulation on participant-level fee disclosure, Field Assistance Bulletin 2012-02.
Phyllis Borzi, assistant secretary of Labor for the Employee Benefits Security Administration, said in a statement that DOL had “promised employers and other plan sponsors and fiduciaries that we would look into the use of brokerage window features,” adding that the RFI’s goal is to “determine whether, and to what extent, regulatory standards or other guidance concerning the use of brokerage windows may be necessary to adequately protect participants’ retirement savings.”
Fred Reish, partner and chairman of the financial services ERISA team at Drinker Biddle & Reath, told ThinkAdvisor that because of the “uproar” created by a question and answer about participant disclosures in the 2012 bulletin, “the guidance was reissued as 2012-02R and the controversial answer was dropped.”
As a part of the re-issued FAB, “the DOL said that it was going to be looking at fiduciary issues for brokerage windows in the future. This RFI is the first step in that process,” Reish says.
While the controversial Q&A was about participant disclosures, Reish adds, “the response to the answer ‘educated’ the DOL that its perception of brokerage accounts was different than the private sector’s.”
For instance, “many at the DOL thought that 401(k) plan fiduciaries were prudently monitoring the window providers and that fiduciaries were very familiar with the investment activities inside the brokerage accounts,” Reish says. “To the contrary, at least some in the private sector--including some plan fiduciaries--felt that participants should be able to do whatever they wanted inside the brokerage windows without fiduciary oversight. I imagine this regulatory process will reconcile those differing views.”
While the RFI doesn’t necessarily mean that a regulation will be developed, Reish adds, it’s “almost inevitable” that guidance will result from the RFI process.
Check out Controversy Over Brokerage Windows Is Focus of Drinker Biddle Debate on ThinkAdvisor.