Since COPA has a number of business owners as members I thought I'd share this press release. Very little publicity to date, but I suspect you'll be hearing more soon.
http://www.expertclick.com/
Jeffrey Harris:Since COPA has a number of business owners as members I thought I'd share this press release. Very little publicity to date, but I suspect you'll be hearing more soon.
This is a specific link to the story you referred to. (It will soon scroll off of the main page you linked to.)
I actually pay all the administrative and management fees for our 401(k) Profit Sharing plan rather than deduct them from the retirement funds, and the employees all directly manage their accounts.
Gordon ATP/CFI SR22 G3 GTS Turbo (TAT of course) w/ DFC90 A/P
Gordon,
I do exactly the same thing with our 401(k) plan. However. I was recently informed (unconfirmed) that not providing any professional investing assistance to the participants could be a violation of my fiduciary responsibility. We have a 3rd party administrator and the accounts are self-directed and reside at Schwab. Have you heard anything like what was reported to me?
Jeffrey, do you know anything about this particular situation?
Jim
N827S SR22 #362 Support the Wounded Warrior Project
Jim Clutter:I do exactly the same thing with our 401(k) plan. However. I was recently informed (unconfirmed) that not providing any professional investing assistance to the participants could be a violation of my fiduciary responsibility. We have a 3rd party administrator and the accounts are self-directed and reside at Schwab. Have you heard anything like what was reported to me?
I provide, on a quarterly basis to each employee, a document with guidance in accordance with the Dept of Labor that includes references to resources so they can make informed investment decisions. The accounts were hosted at Vanguard but they got out of the "small plan" business and now they are at TD Ameritrade, i.e., very low expenses. I have a 3rd party administrator as well (Kravitz), whom I pay out of my own pocket. I am really trying to do well by them.
I have a TPA that I pay seperately also. The advisor I set my plan up with (Morgan Stanley) comes in on an annual basis to review the employees plan with them and advise them of changes. My advisor tells me this is a requirement for him. Company policy or legal responsibility I'm not sure but the employees get advise from outside the company.
The big issue is to never give advise yourself or have others in management give advise.
Gordon Feingold:The accounts were hosted at Vanguard but they got out of the "small plan" business and now they are .....
Not quite an accurate description. You can still have a small 401K / PS plan with Vanguard. They are no longer doing the "record keeping" function. ExpertPlan is now handling that for them. The letter they sent out to clients was very confusing and not accurate. Apparently, they sent a follow up letter that most people didn't read as they were already in the process of switching to avoid the onerous fees they were imposing for failure to switch record keepers.
Frank J. Convertini - KMMU & KFXE
Edward Chan: I have a TPA that I pay seperately also. The advisor I set my plan up with (Morgan Stanley) comes in on an annual basis to review the employees plan with them and advise them of changes. My advisor tells me this is a requirement for him. Company policy or legal responsibility I'm not sure but the employees get advise from outside the company. The big issue is to never give advise yourself or have others in management give advise.
Absolutely proper and correct. It is a requirement of being the Registered Investment Advisor (RIA) or RIA Representative to the plan.
Frank Convertini: Edward Chan: I have a TPA that I pay seperately also. The advisor I set my plan up with (Morgan Stanley) comes in on an annual basis to review the employees plan with them and advise them of changes. My advisor tells me this is a requirement for him. Company policy or legal responsibility I'm not sure but the employees get advise from outside the company. The big issue is to never give advise yourself or have others in management give advise. Absolutely proper and correct. It is a requirement of being the Registered Investment Advisor (RIA) or RIA Representative to the plan.
I am not to sure about this. I owned a recordkeeping firm for 401k plans and also an RIA firm from 1988 to 2003. I spoke on this topic for the better part of 15 years and wrote over 300 plans for different employers during that time. Paying the recordkeeping fee seperate from the advisor fee does not offer any protection to the employer at all. They are two seperate functions. One is accounting the other is investment selection and investment advice.
This all goes back to the basic definition of "agency relationship". Knowing who pays who and what service is performed for that fee determines the agency.
Most brokers (ie statatory emolyees of firms like Morgan Stanley) are not RIA's. They are investment consultants paid on a commission at the product level. In fact, back when I was doing this work actively, most of the brokerage firms would not let their reps use the word "advisor" in explaining their serivces. Nothing wrong with firms like MS as long as everyone knows how and who is being paid. Just because you call yourself an Investment Consultant or Investment Advisor means little. It is more important as to how you are paid and by who.
Hiring someone with pure product independence is best done by paying an Investment Advisor (this is different than an RIA) a fee directly from the employer or the plan. To me it does not matter who pays the fee (employer or the plan) as long as the fee is fair for the service performed, the fee should also be disclosed to the participant. The advisor should also sign an agreement indicating he will offset his fee by any dollars he would receive in the form of commissions, 12b1 fees etc by the product. There are times when a product with a higher fee has better performance than pure no load funds, I would want my advisor to consider these higher cost funds if their performance dictates their use.
This whole issue about fee disclosure is good in that it brings all the fees to light. But avoiding fees jsut because they are there can be just as bad.
Mason
Mason,
The whole world has changed in financial regulation since 2003. All that exists today who can legally take fees for financial advice (securities related of course) are:
1) Registered Investment Advisor Representatives through a Registered Investment Advisor (registered with the SEC) - These are the people who can advise on how to invest in securities and asset classes. They also can manage assets. They can earn fees from a 401K, profit sharing by acting as the RIA representative. Note these fees have to be paid to a RIA. They are a Fiduciary to their clients.
and
2) Registered Representatives through a broker/dealer - These are people who are licensed via Series 7 and usually 63. If limited to mutual fund transactions then series 6 and 63. They are not Fiduciaries.
There are many small shops out there that are not doing correctly. If you work for a larger more compliance oriented firm, this is what you will find today.
Frank Convertini: Mason, The whole world has changed in financial regulation since 2003. All that exists today who can legally take fees for financial advice (securities related of course) are: 1) Registered Investment Advisor Representatives through a Registered Investment Advisor (registered with the SEC) - These are the people who can advise on how to invest in securities and asset classes. They also can manage assets. They can earn fees from a 401K, profit sharing by acting as the RIA representative. Note these fees have to be paid to a RIA. They are a Fiduciary to their clients. and 2) Registered Representatives through a broker/dealer - These are people who are licensed via Series 7 and usually 63. If limited to mutual fund transactions then series 6 and 63. They are not Fiduciaries. There are many small shops out there that are not doing correctly. If you work for a larger more compliance oriented firm, this is what you will find today.
Frank,
I think we are saying close to the same thing, but I don't think the whole investment adviser role has changed in the last 7 years. In fact I have not seen any regulatory changes of any real substance since 1987 on this subject. Can you point me to any real change in regulation in this area?
Brokers are exempt from registration as an RIA and you are correct they are also not considered fiduciaries. This is primarily because they are most often selling products and receiving commissions. Many people don't understand this. This phrase "Financial Consultant" is used way to often in the wrong context.
You can hold yourself out as an Investment Adviser and not be registered with the SEC, as long as you manage less than $25MM in most states. Now the key here is the definition of "manage" which is easy to get around.
RIA's do have to be very careful in giving investment advice to 401k plan participants because they CAN be considered fiduciaries. In the qualified retirement plan world there is a difference in giving the plan advice as to what investments to offer for the plan and giving the participants what allocation choices they should make individually. This allocation advice is where the DOL (not the SEC) has been proposing a lot of change but none of it has been made final that I have seen.
As for the size of the firm, I don't buy the notion that bigger firms do it better. It all boils down to the individual rep and how professional they are. As an example how many RIA firms ever give plan participants actual copies of their ADV fee disclosures like they are supposed to? The average investor thinks he knows what an "Investment Adviser" is but I bet they have never heard of the form ADV.
Fees are ok as long as they add value and are disclosed. But our financial system regarding giving advice is broken and way to complicated for the average guy.
"But our financial system regarding giving advice is broken and way to complicated for the average guy."
That's an understatement Mason, but I'm sure you know that.
My experience has been that the public lumps all "financial advisers" together; and who can blame them. The financial services industry has managed to alienate the majority of the public by allowing an army of salespeople to pass a test, and then be unleashed on a largely financially illiterate public. It's truly amazing!
And the worst damage is done (in my opinion) in the qualified plan market like 401(k)s. The industry has done such a good job of hiding fees and expenses with "revenue sharing" from the investment companies they cut deals with, that many employers really think their plan is free. At least, that's what they've been told by their "financial adviser".
This ignorance isn't limited to little companies either. I met with the SR HR VP for a regional publicly traded phone company. Their 401(k) had over $40MM in assets and he had no idea how much they were paying in fees. Oh but he did know their plan was free and he simply loved the broker who was such a nice guy!
A little detective work revealed they were paying about $100k more than necessary every year. The VP was pretty smug and appeared to have no concern for the fiduciary liability he was exposing the firms officers and directors to. The ironic thing is that by doing what's right for everybody, disclosing all the fees and even bringing in an independent consultant, almost every plan I've looked at could cut costs by a minimum of 10% and sometimes as much as 40%!
The new DOL rules requiring full disclosure next July will go a long way to exposing the fraud that's been going on for decades.
Edward
Unfortunately not giving advice does not in any way releive you from your fiduciary duty to ensure your plan is managed for the exculsive benefit of your employees per ERISA 1974. You are required to document the prudent process you use that led you to hire the vendor's who provide service's. But the DOL isn't trying to sneak up on employers and "catch" them doing something wrong; they'd rather you take steps now to ensure you're in compliance.
Jim:
You are required to provide "education" for your employees so they are able to make educated decisions. Trouble is, even after the education the vast majority don't feel comfortable making those decisions. I suggest pre built models (No NOT TARGET DATE funds) that they can choose from depending on their goals.
Mason Holland:Can you point me to any real change in regulation in this area?
I would suggest that you take a look at the National Securities Markets Improvement Act (NSMIA) 1996 and the US Patriot Act (2001) as amended. The Patriot Act has far reaching financial regulation of brokers and bankers. The change in rules governing brokers (RR's) are far reaching as mandated by FINRA formerly the NASD. Specifically, the disclosure of fees and mutual fund share classes, break point analysis, waiver of asset disclosure as it relates to rights of accumulation.
Mason Holland:As for the size of the firm, I don't buy the notion that bigger firms do it better. It all boils down to the individual rep and how professional they are. As an example how many RIA firms ever give plan participants actual copies of their ADV fee disclosures like they are supposed to? The average investor thinks he knows what an "Investment Adviser" is but I bet they have never heard of the form ADV.
I have never failed to give Form ADV to a prospect. I am required to keep a blotter and report who has received Form ADV to my RIA compliance department irrespective of whether or not a prospect ever invested with me.