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With Fiduciary Rules Pending, Get Your Compliance Act in Order -- Now

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Given the graying of America, advisors must implement operational best practices to compete for and manage increasingly lucrative retirement account dollars.

As investors struggle to digest retirement plan language that can obscure fee-sharing arrangements, which ultimately affect the performance of their IRA and 401(k) accounts, both the SEC and Department of Labor are mulling historic regulatory reforms.

Firms may face severe penalties for breaching their fiduciary obligations. Last year, for example, Nationwide Financial Services agreed to a $140 million settlement -- the largest settlement ever in an ERISA fiduciary breach involving revenue sharing by a service provider -- for failing to disclose payments from third-party mutual funds that resulted in purported plan losses.


Investors are becoming increasingly aware of conflicts of interest that can arise in their advisory relationships, especially depending on the type of licenses their advisor holds.

Many state or SEC-registered advisors don’t realize they don't need a new license or designation to provide retirement plan investment advice. They simply need a complete list of their client's default 401(k) investment options and to confirm if a self-directed brokerage account option is available to them. If so, the advisor can evaluate plan holdings, ranking short- and long-term performance by asset class peer group. Many plans are invested in relatively stable mutual funds that can be evaluated easily by an independent third-party advisor.

A growing number of retirement plans are yielding to participant demands for greater flexibility, adding a self-directed brokerage account option. This allows investors to move part or all of their account from the default menu of mutual fund options to a discretionary brokerage account, and advisors to take an active role in leveraging visibility into their client's complete retirement portfolio.

"Investors know they're getting stuck with unfair fees in these plans," says Ric Lager, an RIA specializing in 401(k) advice in the Minneapolis region. "They just don't know how much. Once an advisor updates their policies and disclosures, objectively evaluating holdings is a straightforward and huge benefit to investors who have historically found the process confusing."


One of the main obstacles advisors face in setting up their practices is the high cost of implementing sound and compliant operations. The cost of compliance keeps many investment advisor representatives tethered to broker-dealers to avoid the expense of developing systems and processes needed to manage investments effectively while safeguarding investors. Adding company retirement plan advice can be a shrewd business strategy advisors should be prepared to embrace – but they should first take the necessary steps to establish sound and compliant operations.

The conflict between the fiduciary standard for investment advisors versus the investment suitability standard to which brokers are held has been a source of heated industry debate for years. But it is common sense and good business for advisors to be operationally prepared for the growing tide of rules and regulations while finding new ways to expand their asset base.

Here are five compliance best practices to support the expected fiduciary rule:

  • Update your fee schedules, investment management agreements, company brochure/web site and other materials to encompass retirement planning advice.
  • Amend your Form ADV and other state and regulatory filings to publicly disclose that you provide discretionary investment advice to individual company retirement plan participants.
  • Archive and maintain documents in a central online library so they can be amended easily and referenced by investors, stakeholder and regulators.
  • Implement a comprehensive compliance software platform to proactively flag suspicious or non-compliant trading activities.
  • Provide automated access to brokerage statements to evaluate and compare retirement account fees and performance.

Carlos Guillen is CEO and president of BasisCode Compliance, a compliance management software firm for financial services providers.

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