A Cautionary Tale from the Snapshot City

In December of last year the United States Department of Labor (“DOL”) filed suit against a Rochester, New York based adviser for the taking of fees that he did not disclose to his 401(k) clients. The DOL complaint relates to "at least nine benefit plans" for which the adviser and a related company (100% owned by him) provided investment advisory and TPA services.
The adviser did a few things that ticked off DOL. He didn't:

• Tell his clients the TPA was receiving fees from the funds in which the plans were invested.
  
• Get independent consent to taking the fees.
  
• Offset the fees he received from the funds against the fees the TPA company charged his clients.
  
• Advise clients to switch to lower cost institutional shares from higher cost shares so that he could continue to pocket the higher fees.The moral of the story: 

Lessons to be learned

• For service providers, disclose all fees and get independent consent to taking them. If you are a fiduciary adviser, it should come as no surprise, you are required to act in your client’s best interest ---- not your own.
• For plan sponsors, directly ask service providers to tell you what fees they and related entities are receiving in connection with their services and make sure you understand what they are telling you. 
  
• Whether you are a plan sponsor or a service provider, if you haven't looked at your processes and procedures relating to the taking of fees, do so. 

Is a forced retirement in your future?
The rules have been known for some time now and the lessons are very obvious. There is really no excuse for not complying with them.  And consider the plight of the adviser. If DOL gets what it wants, the adviser will be forever barred from working with any type of benefit plan. This, I would argue, is not the best way to retire from the business.  

For a deep dive into ERISA responsibilities, read my book, A Guide to ERISA Fiduciary Responsibilities.