Many articles have been written about the SEC’s new Regulation Best Interest for broker-dealers. Most were technical and compliance oriented. This one is different. It is written from the perspective of individual investors and how the rules will affect them.
Continue reading The SEC Issues New Rules for Broker-Dealers: Will They Help Investors?All posts by Fred Reish
Best Practices for Plan Sponsors #8
Lessons Learned from Litigation #1—the Anthem Case
This is the eighth of the series about Best Practices for Plan Sponsors.
Plan sponsors should be aware of the latest trends in fiduciary litigation in order to develop practices to manage the risk of being sued and, if sued, of being liable. The recent settlement of the Anthem case is a good example of the importance of using appropriate share classes and of other practices in selecting investments and monitoring service providers. This article discusses the complaint, the settlement and risk management for plan sponsors and their fiduciary committees.
To start at the beginning, Anthem and its fiduciary plan committee were sued based on allegations that they selected overly expensive share classes (considering what was available to a multi-billion dollar plan); that they overpaid the recordkeeper; and that they offered a money market fund rather than a stable value fund.
Fred Reish Featured on the Cover of 401(k) Specialist Magazine
Los Angeles partner Fred Reish was featured on the cover of 401(k) Specialist Magazine, and was quoted extensively in the cover story titled “Fred Knows 401k Fiduciary.” The article states that after the demise of the Department of Labor’s Conflict of Interest Rule, Fred is “about as close as one can get to someone ‘in the know.’ His expertise and experience have him (always) in demand.”
Continue reading Fred Reish Featured on the Cover of 401(k) Specialist Magazine
Overlooked Issues Under 408(b)(2)
As we do work for “covered’ service providers to ERISA plans, we have seen a number of issues that we think are “flying under the radar.” As a result, I plan to write a series of short articles, like this one, about those issues.
The first is the “related parties” and “subcontractor” issue. Under the 408(b)(2) regulation, if a service provider pays money to an affiliate or a subcontractor, it may be necessary to separately report that payment. Without going into too much detail, the regulation requires that the payment be disclosed in writing if it is incentive compensation or is charged directly to the investments.
While this can affect several of types of service providers, it occurs most often in connection with broker-dealers. Let me explain. While the large wirehouses may treat their financial advisers (or registered representatives) as employees, many broker-dealers treat some or all of their financial advisers as independent contractors. The independent contractor financial advisers typically receive a percentage of the commission paid to the broker-dealer. In other words, they receive incentive compensation. As a result, the payment to the independent contractor financial adviser must be separately disclosed to the plan.
This could also apply to RIAs—investment advisers—where, for example, an IAR receives part of a solicitor’s fee for recommending an investment manager
The regulation is going to be amended before it becomes effective. As a result, some of the 408(b)(2) requirements could change.