Disclosures for Individual Brokerage Accounts


Posted on September 24, 2012, by Fred Reish in 404a-5, 408(b)(2), Broker-Dealers, DOL Activity. Comments Off on Disclosures for Individual Brokerage Accounts

In DOL Field Assistance Bulletin (FAB) 2012-02R, the Department of Labor explained the disclosures for individual brokerage accounts in participant-directed plans. I am concerned that many broker-dealers have not focused on these new “requirements.” That is true for several reasons, including:

  • So much money and energy have been devoted to complying with the plan disclosure requirements, that is, the 408(b)(2) disclosures.
  • The 404a-5, or participant, disclosure requirements are imposed on plan sponsors, in their fiduciary capacity. Stating this slightly differently, the participant disclosures for brokerage accounts are not imposed on broker-dealers, but instead are placed on the shoulders of the plan sponsors. Since it is not a legal responsibility for broker-dealers, it has not received the same attention as the 408(b)(2) disclosures. However, as a practical matter, plan sponsors will turn to the broker-dealers and insist that they satisfy those disclosure requirements. That seems like a reasonable position, since the information is in the control of the broker-dealers.

The FAB provides detailed information about the requirements. To name a few, there is a requirement for a written description of the brokerage account; there must also be an explanation of any fees and expenses that are likely to be incurred in the brokerage account; and, participants must be provided with statements, at least quarterly, describing the fees and charges, both as dollar amounts and in a narrative form.

My sense is that few broker-dealers are prepared to offer assistance at that level of detail. However, I expect that will change now that the work on the 408(b)(2) disclosures is behind us.

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