Interesting Issues under 408(b)(2)


Posted on June 27, 2011, by Fred Reish in 408(b)(2), Broker-Dealers, DOL Activity, fiduciary, Registered Investment Advisers, RIA. Comments Off on Interesting Issues under 408(b)(2)

This is the second in a series of short articles about disclosures to plan sponsors and participants under the new DOL regulations for disclosures to plans and to participants.

FACT: Many investment advisers (RIAs) and broker-dealers (BDs) use asset allocation models (AAMs) to help participants invest appropriately.

RULE: The DOL regulations require certain disclosures about “designated investment alternatives” (DIAs), including the performance history of the investments (to participants).

ISSUE: Are asset allocation models considered to be DIAs, which would invoke the disclosure requirements under both regulations?

ANSWER: Based on informal discussions with the DOL, it appears that they are leaning toward the conclusion that models are DIAs. If so, the disclosure requirements would include, among other things, reports from recordkeepers about the performance history of the models.  However, we believe that most recordkeepers have not been, and may not be able to (on a reasonable basis), calculate and report those returns. (Similar difficulties may exist for AAMs for other disclosures required by the regulations.) This could result in the inability to continue to use those models.

However, if the model is “managed” by a discretionary fiduciary, it appears that the DOL may conclude that is not a model, but instead an investment management service–which apparently would not be considered a DIA.







Recent Insights

Interesting Angles on the DOL’s Fiduciary Rule #62

Is It Possible To Be An Advisor Without Being A Fiduciary?

This is my 62nd article about interesting observations concerning the Department of Labor’s fiduciary...

Interesting Angles on the DOL’s Fiduciary Rule #61

The Fiduciary Rule, Distributions and Rollovers

This is my 61st article about interesting observations concerning the Department of Labor’s fiduciary rule and exemptions. These articles...

Interesting Angles on the DOL’s Fiduciary Rule # #60

What the Tibble Decision Means to Advisers

This is my 60th article about interesting observations concerning the Department of Labor’s fiduciary rule and exemptions. These...