Best Interest Standard of Care for Advisors #10


best interest, broker-dealers
, , ,

Regulation Best Interest: The Focus on Costs (Part 2)

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Regulation, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”

______________________________________________________________________

The SEC’s Reg BI establishes a best interest standard of care for investment recommendations to retail customers by broker-dealers and their registered representatives. In addition, Reg BI requires new disclosures and mitigation of advisor’s financial conflicts of interest. The SEC also issued an Interpretation of the Standard of Conduct for Investment Advisers, which clarified the SEC’s position on a number of issues related to the fiduciary standard and conflicts of interest for RIAs. There were two other pieces of guidance: the Form CRS Regulation (which requires a simplified front-end disclosure by broker-dealers and investment advisers); and the Solely Incidental Interpretation for limited discretion and monitoring of accounts by broker-dealers.

In my last article in this series, I pointed out that the SEC has explicitly included the consideration of costs in the text of Reg BI and stated that broker-dealers must consider costs for every recommendation (beginning on Reg BI’s compliance date of June 30, 2020). That doesn’t mean that the lowest-cost investment or investment strategy must be recommended (e.g., where the customer’s investment profile indicates that a more expensive alternative would be better serve the investor), but it does mean that costs must be part of that analysis, and that higher-cost alternatives must be justified by the retail customer’s investment profile. Picking up with where the last article left off, here is the SEC’s thinking:

Continue reading Best Interest Standard of Care for Advisors #10 →

Share

Best Practices for Plan Sponsors #11


fiduciary
, , , , ,

Lessons Learned from Litigation (#4)—The ABB Case

This is the eleventh in a series of articles about Best Practices for Plan Sponsors. To be clear, “best practices” are not the same as legal requirements. Instead, they are about better ways to manage retirement plans. In many cases, though, “best practices” also are good risk management tools because they should exceed legal standards, address areas of concern, or anticipate future developments as retirement plans and expectations evolve.

Plan sponsors should be aware of the latest trends in fiduciary litigation to help manage the risk of being sued and, if sued, the risk of being liable. In my past three plan sponsor posts, Best Practices for Plan Sponsors #8, #9, and #10, I discussed the lessons learned from the conditions in the settlement agreements for the Anthem, Vanderbilt and BB&T cases. This article—about the ABB settlement agreement—is another example of the importance of using appropriate share classes and the  monitoring of compensation of service providers . . . and more.

Continue reading Best Practices for Plan Sponsors #11 →

Share

Best Interest Standard of Care for Advisors #9


reg BI
,

Regulation Best Interest: The Focus on Costs (Part 1)

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Regulation, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”

The SEC’s Reg BI establishes a best interest standard of care for investment recommendations to retail customers by broker-dealers and their registered representatives. Reg BI also requires new disclosures and mitigation of advisor’s financial conflicts of interest. The SEC also issued an Interpretation of the Standard of Conduct for investment advisers, which clarified the SEC’s position on a number of issues related to the fiduciary standard and conflicts of interest. In addition, there were two other pieces of guidance: the Form CRS Regulation (which requires a simplified front-end disclosure by broker-dealers and investment advisers); and the Solely Incidental Interpretation for limited discretion and monitoring of accounts by broker-dealers.

The SEC’s release for the proposed Reg BI described “cost” as being a more important consideration than it is under the suitability standard. However, in the final Reg BI, the significance of “cost” was elevated even further. That was accomplished by moving “cost” from the release discussion to the actual regulation. In relevant part, the Reg BI Care Obligation now reads:

Continue reading Best Interest Standard of Care for Advisors #9 →

Share

Best Practices for Plan Sponsors #10


plan sponsors
, , , ,

Lessons Learned from Litigation (#3)—The BB&T Case

This is the tenth in a series of articles about Best Practices for Plan Sponsors. To be clear, “best practices” are not the same as legal requirements. Instead, they are about better ways to manage retirement plans. In many cases, though, “best practices” also are good risk management tools because they should exceed legal standards, address areas of concern, or anticipate future developments as retirement plans and expectations evolve.

Plan sponsors should be aware of the latest trends in fiduciary litigation to help manage the risk of being sued and, if sued, the risk of being liable. In my past two plan sponsor posts, Best Practices for Plan Sponsors #8 and #9, I discussed the lessons learned from the conditions in the settlement agreements for the Anthem and Vanderbilt cases. This article—about the BB&T settlement agreement—is another example of the importance of using appropriate share classes and a good process for selecting investments and monitoring service providers.

Continue reading Best Practices for Plan Sponsors #10 →

Share

The SECURE Act and Guaranteed Retirement Income in Plans


fiduciary, prudent
, , ,

By now you have probably seen a number of articles about the SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019) and its safe harbor for guaranteed retirement income in 401(k) plans. Some have favored the safe harbor, while others have criticized it. In either case, the authors appear to contemplate that participants will be buying individual annuities at retail prices.

In my opinion, those articles—on both sides of the fight—are at best misleading and in some cases just plain wrong. I am writing this article to give you my views.

Continue reading The SECURE Act and Guaranteed Retirement Income in Plans →
Share

If The SEC Is Telling You To Ask Your Financial Advisor These Questions, You Probably Should


broker-dealers, SEC

The SEC has issued a four-part rules package for broker-dealers and investment advisers that includes the new Form CRS Regulation. The regulation requires broker-dealers and investment advisers to give short disclosure documents to all customers and potential customers beginning June 30, 2020.

The rule also requires that the new disclosure document provide investors with a series of questions that they should ask their adviser. Don’t you think you should know what those questions are . . . before you’re asked? The questions and my comments are in an article I wrote for my Forbes blog.

Continue reading If The SEC Is Telling You To Ask Your Financial Advisor These Questions, You Probably Should →

Share

Best Practices for Plan Sponsors #9


403(b), fiduciary
, , ,

Lessons Learned from Litigation (#2)—the Vanderbilt Case

This is the ninth of the series about Best Practices for Plan Sponsors.

Plan sponsors should be aware of the latest trends in fiduciary litigation in order to manage the risk of being sued and, if sued, of being liable. In my post, Best Practices for Plan Sponsors #8, I discussed the lessons from the settlement of the Anthem case. The Vanderbilt settlement is another example of the importance of using appropriate share classes and of a good process for selecting investments and monitoring service providers. This article discusses the Vanderbilt lawsuit and the conditions in the settlement agreement.

Continue reading Best Practices for Plan Sponsors #9 →

Share

Best Interest Standard of Care for Advisors #8


401(k), 403(b), registered investment advisers, SEC

Senior Clients: The SEC is looking at practices of RIAs

I am writing two series of articles that together are called “The Bests.” One is about Best Practices for plan sponsors, while the other is about the Best Interest Standard of Care for advisors. Each series is numbered separately to make it easier to identify the subject that is most relevant to you.

This is the eighth of the series about Best Interest Standard of Care for Advisors.

The SEC has initiated examinations of investment advisers concerning their practices in working with Senior Clients. According to the SEC, a “ ‘Senior Client’ is defined as any retail advisory client who is age 62 or older, retired, or transitioning to retirement, including accounts of deceased clients, and retail clients in joint accounts with at least one individual meeting this definition.”

Continue reading Best Interest Standard of Care for Advisors #8 →

Share

Best Practices for Plan Sponsors #8


best practices, fiduciary

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.

Continue reading Best Practices for Plan Sponsors #8 →

Share