The Financial Professional's Dilemma
In the last year I’ve talked to many brokers whose primary market is small plans. Most do a great job for their clients, are committed to providing valuable services for reasonable fees, and take their client’s interests to heart. But almost to a person these dedicated and knowledgeable professionals resist when I suggest they need to do more for their clients to protect them from fiduciary liability.
Mostly they tell me, as just mentioned, they already are doing a great job. They also tell me that imparting fiduciary risk management techniques to their clients is too burdensome for their mom-and-pop clients and way too expensive for them and their clients. In short, they tell me that making the effort is a waste of time, money, and resources. I think they are wrong about this, but I understand them --- they are working from experience they know has worked for them. There is no reason to do more and no reason to change.
Why should brokers try to move their clients to an ERISA-based compliance regimen?
One good reason is the United States Department of Labor. DOL investigations now focus chiefly on the following three questions, all of which should be of concern to brokers if for nothing else than for their own self-interest.
Answer these questions in the affirmative and the DOL investigator is likely go away in search of lower hanging fruit. Fail to answer any of them with a well-documented file and the resulting time, expense and stress burden can be significant for both the client and the broker. And that's even if at the end of the investigation DOL finds no violation. Ask any plan sponsor that has undergone an investigation "unprepared" and they will tell you they would do anything to avoid the ugliness again. It can be ugly whatever the result.
How can financial professionals help their clients avoid this ugliness?
The Key Questions for Investment Professionals
Would you rather have nothing in your client’s plan file with which the client can defend itself and the prospect of a difficult DOL investigation or a properly papered file? How comprised will your position with your client be when they are not in a position to defend the fees that their plans pay to you?
For more of a deep dive into the role of brokers under ERISA and the securities laws, see my article, "The Uniform Fiduciary Standard and ERISA Plans: A New Kind of Status Quo is Emerging for Brokers” that appeared in the November/December 2014 issue of Investment & Wealth Monitor. For a complete treatment of ERISA fiduciary responsibilities, buy my book, A Guide to ERISA Fiduciary Responsibilities for Advisors and Sponsors of 401(k), 403(b) and Profit Sharing Plans, by clicking here.
Having an expert at your side provides added value
I have helped financial professionals establish simple fiduciary regimens incorporating these elements at very reasonable cost. Some professionals will provide this service at no additional cost to their clients. Others will charge for it. Many prefer the “no-fee” approach as a significant added value for their clients. Please call me at 978-688-2162 to discuss or email me at firstname.lastname@example.org with your questions.
Chuck Humphrey, an experienced employee benefits attorney and a a leading exponent of the fiduciary ethos, shares his thoughts on current developments in this important area and provides advice on how to survive life as a plan sponsor, fiduciary, or plan plan advisor. He can be reached at email@example.com or at 978-688-2162.