The obstacles are overrated and the opportunity is underrated

May 25, 2010 — 4:57 AM UTC by Ric Lager, Guest Columnist


There has been a great deal of apprehension, to say the least, about the proposed Department of Labor regulations for brokers and advisors operating in the 401(k) advice marketplace.

These proposals, whatever their final form, will totally reconstruct how broker-dealers allow their representatives to sell and advise company retirement plans. In addition, the final outcome is certain to change the way current company retirement plan participants choose to roll over their company retirement plan accounts later.

Acting as a fiduciary … level compensation … compensation disclosure … computer models…no wonder the broker-dealer world is concerned. That sounds like a lot of work for a broker-dealer representative to go through in order to provide the same kind of retirement plan investment advice any RIA can provide right now.

I am all for less stress in my business life.

To ignore is bliss

I have been able to totally ignore what new proposals the Department of Labor has in store for the old-fashioned broker-of-record on company retirement plan accounts. My firm is already positioned in a much better business niche providing advice to the company retirement plan participants that I want to work with.

RIAs can provide individualized retirement plan investment advice to their current clients on the menu of mutual fund options in the clients’ company retirement plans. They can also do the same thing for the clients’ working spouses.

When they are finished expanding their current client investment relationships to include company retirement plan advice, these RIAs can prospect all the other professionals who work at the same company as their clients and clients’ spouses and open those company retirement plan investment advice relationships as well.

I have always wondered why RIAs battle every day of their lives to open up small after-tax brokerage accounts with new clients when, at the same time, their existing clients have retirement plan accounts that are well into the hundreds of thousands of dollars in size.

In the online classes I teach and in the public seminars I give for professional investment advisors, I see and hear about RIAs competing with every possible financial services provider—-banks, insurance companies, annuity companies, mutual fund companies, discount brokerage firms, etc.—for the small balance after-tax brokerage accounts.

RIAs don’t articulate a plan

I never hear an RIA articulate to me a logical, organized and disciplined account management and prospecting plan to manage the company retirement plan accounts for these same clients and prospects that are multiple times bigger than the after-tax accounts.

Add a working spouse to the equation, and most any RIA with even a few years experience could easily find $1.5 to $2 million dollars in company retirement plan assets to manage for a fee in every client household he or she has a relationship with right now.

In my experience, expanding my client investment advice relationships to include the company retirement plan account assets has been a better use of my time than worrying about my fiduciary liability or about how level my management fees are.

I could say the same thing about computer models. But I don’t use them.

For the last eleven years, I have built a 401(k) advice niche business operating as an independent SEC-registered RIA providing investment advice to individual company retirement plan participants.

The key phrase here is “individual company retirement plan participants.” My retirement plan advice clients are the individuals who participate in company retirement plans—-not the company retirement plan itself.

Bagged-lunch seminars are not required

I have never attended a Benefits Committee meeting or submitted a request for proposal. I have never given a bag lunch seminar over lunch hour in the company cafeteria. Hell, I don’t even have a PowerPoint presentation on the topic.

In the summer of 1998, my technical analysis database provider began daily mutual fund pricing and charting services. At that time, I began to ask my client base — lawyers, doctors, Fortune 500 executives — if I could get a copy of their default menu of mutual fund options in their company retirement plan.

The sales pitch at that time was simple enough. I made the case to my clients that I was curious if I could apply the same stock market risk-management techniques and tactical asset allocation strategy that we used outside of their company retirement plan accounts to the monies inside their company retirement plan accounts.

As it has turned out, the stock market risk-management game plan is the same one that I always used for my client stock and ETF accounts. Tactically managing a default menu of mutual funds is just as easy. I use relative strength tools to identify the asset classes that are outperforming the stock market benchmarks.

In an offensive stock market environment, I know exactly what asset classes to own so the individual mutual fund picks are easy. In a defensive stock market environment, it does not matter what the computer model says you should own. Money market is the best investment available on any company retirement plan menu in times like that.

New information

I think it is completely new information for most independent RIAs to think of the asset base in their current client’s company retirement plans as a pool of money in desperate need of an advisor.

My current retirement plan advice clients have signed a discretionary advisory agreement designed by my compliance firm. As per my SEC audit of a few years ago, if I have a client’s company retirement plan log-in and password information, I am deemed to have discretionary authority in that advisory relationship.

My management fee schedule for my company retirement plan advice accounts is the same scale as my ordinary after-tax RIA managed accounts.
I don’t custody the money in the company retirement plan account. The retirement plan account stays at the company retirement plan provider—-either the main company retirement plan provider and or the self-directed brokerage account provider.

What’s more, I also think that most independent RIA’s would be shocked to learn that my advisory fees for this 401(k) advice niche business are paid to my firm directly from the client’s money market accounts inside the company retirement plan. That’s right; my advisory fees are paid in pre-tax dollars directly from the company retirement plan provider.

Major providers grant third-party access

Almost every major company retirement plan provider has policies and procedures in plan to allow third-party access to individual company retirement plan participant accounts.

When you add to that the fact that most large company retirement plans now include an SDBA option (self-directed brokerage option), most of what RIAs need now to enter the retirement plan advice business is already in place for the majority of their client’s and prospects.

Share your thoughts and opinions with the author or other readers.


Phillip Chiricotti said:

May 25, 2010 — 11:25 AM UTC

This article is complete fertilizer. Unguided fiduciary missiles are not a retirement plans solution. It takes decades to become a true retirement plans expert. Nobody can make it in the retirement plans world without scale, collateral resources, in depth ERISA knowledge, retirement plans experience and the appropriate insurance. Compensation methodology is not by itself a qualifier. Everyone who is a real player in the world of retirement plans already knows this. RIAs could, however, still enter this extremely mature and competitive marketplace by partnering with an existing team of retirement plan specialists.


Bill Winterberg said:

May 25, 2010 — 2:52 PM UTC

In my opinion, this article is not on par with the high standards followed by the many RIABiz contributors.

Yes, RIAs have much more latitude when considering the delivery of investment advice to qualified retirement plan participants. Most of us know that.

How can periodically collecting plan statements the manage accounts be efficient or effective? No mention was made of account aggregation.

Also, if an advisor holds the client’s account login credentials, she may be deemed to have custody of client funds, not just discretion.

While RIABiz adds value through guest contributions (and in full disclosure, I have been one of them), this article was not up to its standards.


Kyle Hewlett said:

May 25, 2010 — 4:18 PM UTC

You’re missing the point, Phillip. The skill set you refer to applies to servicing sponsors. Ric’s referring to helping participants which doesn’t necessarily require all the knowledge/experience you describe. I’ve been in the sponsor service space for 15 years, wealth management for 26 years and the participant advice market for 6 years and have found a couple of key factors in participant advice. First, tactically it’s much easier to find a prospect in the next cube than in a “luncheon meeting” as Ric Lager says. Second, you might have to consider a good delivery system with advanced deliverables for the participants. Participants want clear answers (like when and how much?) with simple graphics rather than mind numbing education. We developed a delivery system (eZ-Adviser) that allows me to efficiently do allocations and deliver my tactical advice via emails to close to 500 individual clients in 39 plans with the click of a single “process” button.

Most important to this market niche is you can’t take a “set it and forget it” approach with participants. A 401k client with $500K needs “touches” just like a wealth management/retail client. We made a review process a part of our advice delivery process and now most clients get 15-20 touches from us each year. Yes, it’s a new set of skills, but it is gleaning .8 referrals per review, and a client retention rate of 97%, with over $51 million in retirement assets.


Ron said:

May 25, 2010 — 8:37 PM UTC

As an RIA, I have always wondered how to set this up – especially when it comes to billing the client via the 401k plan.

Are there any good resources available for those of us who would like to pursue this?


Brooke Southall said:

May 25, 2010 — 9:26 PM UTC

Hi Ron,

I believe your query speaks for thousands of RIAs, which is one reason we’ve been trying to up our coverage in this area at RIABiz..

I hope you get some good responses but I’ll offer a couple of other articles that may serve as useful starting points:

<a href="" target="_new">7 things a financial advisor needs to know to succeed in the 401k business</a> by Don Trone


<a href="" target="_new">RIAs are starting to create their own 401(k) companies as alternatives to John Hancock and The principal</a> an article I wrote about practitioners in the industry.


<a href="" target="_new">Fidelity brings its 401(k) muscle to RIAs with new product</a>

all the best,



Jan Sackley said:

May 25, 2010 — 9:28 PM UTC

If I understand Phillip’s comment, it appears to be his view that a retirement plan portfolio advisor should be an Erisa expert as well. I think that that is true with respect to fully understanding all of the withdrawal, conversion and other options available to plan participants, as well as identifying appropriate investment solutions and for self-directed plans, a strong knowledge of prohibited transactions and exemptions. It is not as necessary for the portfolio manager to also be an ERISA expert with respect to plan construction and other sponsor and trustee duties as long as you do not advise the sponsors and trustees. The advisor must know what he or she doesn’t know and not cross the line. That challenge requires some knowledge of ERISA.

Jan Sackley, CFE
Fiduciary Foresight, LLC
Risk and Regulatory Compliance Consultants


Stephen Winks said:

May 25, 2010 — 10:21 PM UTC

Phil is correct to say that advising plan participants requires the advisor to act in a fiduciary capacity as specifically required by the Department of Labor (2007 Ruling). Until the Johnson/Crapo Study is finished and the SEC is authorized to hold brokers to the fiduciary standard of care, advising plan participants on all their holdings may be the only place where brokers have a fiduciary duty to individual investors. The question is whether Mr. Lager is acting in a fiduciary capacity? There is a clear difference in the level of counsel required between Mr Lager acting in a brokerage capacity and his acting in a fiduciary capacity. Mr. Lager suggests he has avoided all the requisites of fiduciary standing which depending upon your perspective either means fiduciary standing is an unecessary nuisance or immaterial. That is not the case with with the Department of Labor nor in the best interest of the consumer.



Brooke Southall said:

May 25, 2010 — 10:32 PM UTC

I receive comments here and in my e-mail box all day to the articles we write. Bill and Phil were harshly critical about this column but other comments I’ve heard privately were far more positive. Here’s an example of one I received.

“I didn’t see anything wrong with the author’s article and I disagree that 'it wasn’t up to RIABiz standards.’ It described an approach to an advisory practice that I actually think is badly needed. Joe Lunchbucket doesn’t have the option of paying big bucks to an advisor who only takes clients of $1 million or more.’

My opinion: Whenever an industry veteran like Ric Lager is willing to open up and tell about their experience, I think it serves our readers well. He is also not afraid to rock the boat. Lager’s previous RIABiz column: <a href="" target="_new">Reclaim management of your clients’ funds</a> also generated controversy — especially from people with interests in providing outsourced investments.



Marcus Crawshaw said:

May 26, 2010 — 3:22 PM UTC

Mr. Lager does a great job of demonstrating that RIA’s can and should work in the 401k space, especially on the participant side. For years, we have managed a client’s 401k account along with their other accounts. If you are truly assisting a client invest for retirement, how can you ignore what is most likely their largest retirement asset? You are not doing your job, if you don’t include the 401k in your planning and management.

As for the critical comments, I don’t quite understand them. As an independent, fee-only adviser, I accept fiduciary responsibility with every client I take on. So, how is pursuing 401k participant business bringing on additional fiduciary responsibility I don’t already have?

In my opinion, Mr. Lager could not be more right. The 401k space is ripe for true RIA’s.



Stephen Winks said:

May 26, 2010 — 6:18 PM UTC

The confusion arises from whether Mr Lager is acting in a fiduciary capacity as defined under ERISA,

Those advisors who primarily serve institutional clients under ERISA such as Phil do not view the level of continuous comprehensive fiduciary counsel they provide which entails accountability, transparency, cost discernment, conflict of interest management, aggregiagated performance reporting, etc., etc, as not being remotely similar to the level of counsel Mr. Lager provides. It is not possible in a brokerage firm. Regulatory reform is important because broker/dealers and custodians do no support that level of counsel. Thus, the deeper you go into advisory services and what constitutes advice, the more one understands the self imposed limitations of a brokerage platform. There is a difference between brokers and advisors. If a broker is relying on a brokerage platform to fulfill their fiduciary duties, they do not understand that it is simply not possible as acknowledging fiduciary status to clients is a violation of internal compliance protocol and removes the brokerage industry’s principal defense in arbitration procedings.

If brokers were held to a fiduciary standard of care there would be no controversey, unfortunately brokers are not and are not able to act in the best interests of the consumer as defined under ERISA.

Thus, the the mystery of the differences of opinion is resolved by whether one is a broker or advisor. The way the brokerage industry defines itself, brokers can not be advisors. Brokerage firms do not acknowledge advice is being provided nor support advisory services in the manner required under ERISA. This is a shame, most brokers want to be held to a fiduciary standard. The industry is simply so insular to the needs of the consumer and advisor it would rather place the broker in an untenable position counter to the best interests of their clients than provide the necessary enabling resources which would safely bring easy to execute fiduciary standing within the reach of every broker.



Peter A. Savarese said:

May 26, 2010 — 8:15 PM UTC

Ric’s article describes a business model that works for him and provides needed services for 401k participant’s who are not offered participant level advice through the plan’s adviser.

The article does not describe providing plan-level services, or participant-level services under an arrangement put in place by the Plan Sponsor, but asset allocation services (discretionary in this scenario) for plan participants within investment options made available by the Plan Sponsor.

Phillip seems to be dismissing alternative business models that also serve the best interest of the plan participants. If a Plan Sponsor has made bad choices, the participants have to live with it. Ric’s model helps the participants in the context of a Plan that they did not design and that they have to live with. I have attended multiple CFDD conferences before and know that Phillip has a deep understanding of the retirement plan marketplace, but can’t understand why he slammed this article.

Bill, please clarify what your opinion is! Is it that the article does not meet the high standards followed by the many RIABiz contributors? Or is it the business practices described in the article that does not (in your opinion) meet the high standards followed by the many RIABiz contributors? If you are going to criticize someone’s article, you should at least be clear on what you are criticizing.
Next, regarding your other question, “How can periodically collecting plan statements the [SIC] manage accounts be efficient or effective?” THE ANSWERS ARE: It can be efficient if the RIA can properly serve the participant and earn a fee commensurate with the amount of time he expends and it can be effective for the participant because he has a professional advisor performing periodic asset allocations rather than selecting the investment options themselves. Participants are stuck with the plan design and investment options made available through the plan. At least in this business model the assets can be properly allocated.

On a compliance note: For all of you that log in as your client to allocate assets in their 401k plan, the SEC has finally spoken on May 20, 2010. See.
Question II.6. Q: If an adviser has the ID number and password to a client’s pension fund account to rebalance and adjust investments in the account, does the adviser have custody? A: The adviser has custody if password access provides the adviser with the ability to withdraw funds or securities or transfer them to an account not in the client’s name at a qualified custodian. (Posted May 20, 2010)

Regarding Stephen Winks comments. It seems Mr. Winks just does not understand Ric’s business model . Furthermore, he seems not to understand too much about being an ERISA fiduciary. Mr. Lager runs an RIA. His article describes providing fiduciary investment advice to a plan participant under ERISA. He is unquestionably is an ERISA fiduciary under the business model he described and understands that he is. To claim he is acting in a brokerage capacity shows that Mr. Winks did not read the article or does not understand business models different than his own. Furthermore, Ric did not say that “he has avoided all the requisites of fiduciary standing.” To say he did again indicates that the article was not read thoroughly or that is was not understood. Based on Ric’s stated business model, he would be an ERISA fiduciary even if his agreement with the participant said he was not in 72 point text along the header of each page. A person can become an ERISA fiduciary simply by his actions not withstanding anything he or she disclaims or includes in a written agreement. It is called a functional fiduciary under ERISA Section 3(21).

My firm handles compliance for over 600 RIAs, many of which provide non-fiduciary consulting, or fiduciary advice or management services at the plan and/or participant level. There are more business models out there than you can imagine. One thing is for sure, if the DOL does their job and promulgates 408(b)(2) as expected (and extremely overdue – I may add) , all RIAs will have a competitive advantage over their former BD/RR competition. The RIA’s value proposition, if structured properly, can win every time.

That being said, being a fiduciary to a qualified plan carries many risks. Even providing advice to a plan participant without any contract to the Plan can cause the RIA to be deemed a Plan fiduciary and subject the RIA to ERISA, including but not limited to the prohibited transaction rules. Consult with an ERISA attorney when structuring your arrangements. My comments are not, nor are they intended to be, legal advice. These comments are mine and do not necessarily reflect the opinion of my firm.


Kyle Hewlett said:

May 26, 2010 — 9:01 PM UTC

Well said Mr. Savarese.


Stephen Winks said:

May 26, 2010 — 9:21 PM UTC

It is simply a question of the brokerage/insuance/custody industry reconciling the support they provide with the fiduciary standing desired by brokers.

If Mr Lager is satisfied that he treats trade execution as a cost center to be minimized rather than a profit center, if he has the capability to continuously and comprehensively monitor all his clients holdings as required for fiduciary counsel, if he has a CIO function affording global asset allocation, if he has a prudent investment process (asset/liability study, investment policy, portfolio construction/management) tied to statutory documentation to assure fiduciary standing for each of the ten major market segments he serves, if he can articulate the different breadth and depth of advisory services relationships (transactions, planning, consulting, fiduciary counsel) his clients can avail themselves to, if he is comfortable in his technology providing the transparency and accountability necessary for continuous comprehensive counsel, if he is able to drive down the cost of investment vehicles to 25 bps or less while facilitating real time data mnagement, if the interest earned on the capital float earned on assets between trade exection and settlement accrues to the client not his supporting firm, if no principle trade mark ups are allowed, if he is able to provide a work around for a common communications protocol until it is developed which makes real time data manageable, if he has the ability to accept all client holdings as they are going beyond stocks, bonds, managed accounts, mutual funds, ETFs, etc., then he is acting in a fiduciary capacity. The brokerage, insurance and custody businesses have not acquited themselves well in any of these areas central to fiduciary standing. Thus having fiduciary responsibility is different from fulfilling ones fiduciary obligations.

This is why regulatory reform is so important to the broker and advisor alike. Without regulatory reform requiring the proper resourcing of brokers, it is extremely difficult for an individual practitioner to execute this level of counsel without scale. Mr Lager can not possibly do all of the above with out assistance from his brokerage firm/insurance company/custodian as most of these fiduciary duties are beyond his control. If Mr Lager is providing this level of counsel relying on his own resources he has accomplished a daunting Herculean task that our largest fiancial services organizations are shrinking from. The point here is inorder to make advice safe and easy to execute it requires scale that is beyond the reach of the individual practitioner such as Mr. Lager. There is presently no large scale institutionalized support for fiduciary standing that makes advice safe and easy to execute. This level of counsel is being achieved on the institutionasl level and it must be brought down to the level of the typical advisor if we are to render advice to plan participants as required under ERISA .



Phillip Chiricotti said:

May 27, 2010 — 12:21 PM UTC

Bud is correct, my comments were related to RIA/IAR type advisors who provide “plan” level services. My point was simple. Many in the industry foolishly believe that their registration status qualifies them to service ERISA plans. That is simply not correct. Advisors are specialists or they aren’t. There is also a false assumption that retirement plan fees are too high and that the investment menus are not good. That may or may not be true in the small plan market, but on balance, it is not true in the mid-large plan market. Regarding this specific article, I would, however, note that an RIA’s fees may NOT be paid by the plan unless the plan document allows it. Furthermore, if they were paid by the plan, the sponsor may be responsible for ensuring the fees are reasonable. Additionally, some would argue that if the plan does pay the RIA’s fees, they would also be responsible for thoroughly vetting the RIA’s capabilities, qualifications and insurance, including ERISA bonding and employee dishonesty insurance that protects non-ERISA funds from theft. That same vetting would be applicable to any advisor the plan sponsor allows onsite to provide participant services. Most plan sponsors are simply not qualified or interested in doing that. To find out how to evaluate retirement plan advisors, see the plan sponsor guide located at:


Peter A. Savarese said:

May 27, 2010 — 2:07 PM UTC

Phillip made a very important observation that would normally not be addressed and could (but not necessarily) lead to ERISA violations or breaches of fiduciary duty. Regarding the payment of fees in the article, fees are paid directly from the client’s money market account inside the company retirement plan. Phillip is correct that when Plan assets are used to pay the fees for any service provider, they must first be authorized under the Pan document and, if so, also must be “reasonable” in the judgment of the fiduciary authorizing the payment. Someone had to authorize the payment of the RIAs fees from the participant’s account. With the exception of the scenario discussed below, I would bet that the plan fiduciary authorizing such payment is not aware that they may be at risk for that decision. Consistent with Phillip’s comment, I would argue that they are (whether knowingly or not) responsible for vetting the RIA as to “capabilities, qualifications and insurance, including ERISA bonding” (which, by the way, arises from having discretion to manage the participant’s assets).

It would be easily for an RIA to incorrectly assume that since the participant hired them they do not need to answer to the plan sponsor or other responsible plan fiduciary. That is not always the case when plan assets are used to compensate the RIA. If the fees are authorized by the plan sponsor or responsible plan fiduciary (I rarely see this but it could happen), I would argue that the use of plan assets to pay the participant’s chosen RIA now makes the plan sponsor or responsible plan fiduciary responsible for all aspects of that RIAs engagement. I would advise my client to have those fees paid from non-plan assets or an SDBA.

I suspect that in Ric’s scenario, the participant has a SDBA (self-directed brokerage account) which would make the decision to pay the fees a decision made by the participant and not the Plan sponsor or other responsible plan fiduciary.

Sorry but I have to add this. Consult with an ERISA attorney when structuring your service engagements. My comments are not, nor are they intended to be, legal advice. These comments are mine and do not necessarily reflect the opinion of my firm.


Brian C. Hubbell said:

May 28, 2010 — 4:58 PM UTC

Phil Chircotti’s comments (both of them) are right on target. The article that was written, and a few of the comments critizing Phil’s comments, demonstrates how RIAs focused primarily on “individual” wealth planning do not understand ERISA. As the article denotes “To ignore is bliss…...”. But it’s a bad motto when dealing with ERISA retirement plan assets.

One more point, the SDBA is a “plan asset” and there is NO difference whether fees are drawn from a SDBA or the “core” investment funds as it relates to the ERISA fiduciary concerns Phil raises.



Sean Cunniff said:

May 28, 2010 — 7:28 PM UTC

I am surprised no one has mentioned DOL Advisory Opinion 2005 – 23A, I’d love to hear some comments:

Here is the full opinion:

Here are some highlights with emphasis added:

Question 1: Is an individual who advises a participant, in exchange for a fee, on how to invest the assets in the participant’s account, or who manages the investment of the participant’s account, a fiduciary with respect to the plan within the meaning of section 3(21)(A) of ERISA?

A. The Department has stated on numerous occasions that directing the investment of a plan constitutes the exercise of authority and control over the management or disposition of plan assets and that the person directing the investments would be a fiduciary, even if the person is chosen by the participant and has no other connection to the plan.

Question 2: Does a recommendation that a participant roll over his or her account balance to an individual retirement account (IRA) to take advantage of investment options not available under the plan constitute investment advice with respect to plan assets

Answer: It is the view of the Department that merely advising a plan participant to take an otherwise permissible plan distribution, even when that advice is combined with a recommendation as to how the distribution should be invested, does not constitute “investment advice” within the meaning of the regulation (29 CFR § 2510-3.21©).(3)

...Where, however, a plan officer or someone who is already a plan fiduciary responds to participant questions concerning the advisability of taking a distribution or the investment of amounts withdrawn from the plan, that fiduciary is exercising discretionary authority respecting management of the plan and must act prudently and solely in the interest of the participant.(5)

Moreover, if, for example, a fiduciary exercises control over plan assets to cause the participant to take a distribution and then to invest the proceeds in an IRA account managed by the fiduciary, the fiduciary may be using plan assets in his or her own interest, in violation of ERISA section 406(b)(1).

Question 3: Would an advisor who is not otherwise a plan fiduciary and who recommends that a participant withdraw funds from the plan and invest the funds in an IRA engage in a prohibited transaction if the advisor will earn management or other investment fees related to the IRA?

Answer: No. ...
...However, as indicated above with respect to question 2, this position applies only to advice provided by a person who is not a plan fiduciary on some other basis. Advice of this nature given by someone who is already a fiduciary of the plan would be subject to ERISA’s fiduciary duties. Moreover, if the person exercised control over the participant’s account in making the distribution and reinvestment outside the plan, the person would be a fiduciary and would be subject to the ERISA’s fiduciary obligations.


This seems to say that if you advise on a 401(k) account and then later recommend that the client roll over to an IRA that you are paid to manage then you may be in hot water…



Walt Melcher said:

May 28, 2010 — 11:52 PM UTC

I agree with Phil Chiricotti’s comments and I can’t believe the author of this article mentions the lack of an adviser’s ability to articulate an account management and prospecting plan before ever mentioning the importance following ERISA regs and DOL guidance relating to managing a participant’s account in an ERISA Plan as those accounts are still plan assets and subject to ERISA and DOL requirements.

RIA firms helping participants with their retirement plan accounts without a real working knowledge of ERISA or DOL requirements are putting their clients at significant risk.


Vince Birley said:

May 29, 2010 — 2:24 PM UTC

I have read all of the expert’s opinions and concluded no one knows. This is consistent with what I have found in the fiduciary world. And as far as Peter’s suggestions to seek legal counsel all I have found is inconsistencies with no clarity.

So you have attorneys and editors all trying to give their opinion on what we can and can’t do and what our risks are and aren’t. While none of them have ever given counsel to plan sponsors or individuals.

So how should advisors make decisions? The Golden Rule has to rise above all the legal interpretation and do the right thing for sponsors and participants.

Ric recognizes that participants need advice. He is trying to help them. Good for you Ric. If a participant signs an engagement letter with you and wants to pay for advice from his participant account then I would trust that if you feel it is good advice then ignore all this legal jargon and go provide it.

Others of you are focused on the plan sponsor. Helping a plan sponsor understand their fiduciary responsibilities in offering a retirement plan is great. The risks we are trying to mitigate are participants being unhappy one day and making a stink. Otherwise, the chances of problems in sponsoring a plan are minimal outside of plan compliance and recordkeeping.

So if a plan sponsor hires a qualified investment advisor who takes discretion on investment line-up decisions and creates models to help participants allocate and helps participants understand how much they need to save then that plan sponsor should feel better. If that plan sponsor also thinks the participants also need advice and the plan sponsor makes available advisors at the plan’s expense then even better for that plan sponsor. The plan sponsor is helping plan participants. Who would not feel like this is a better defense in court than sayiing to the judge or jury…“We felt like it was too risky to make advice available to plan participants.”

Let’s get practical and quit trying to figure out the all of the risks and focus on service that helps the plan sponsor and participant and trust our advice is something sponsors and participants will value. This is true risk mitigation.

And some advice to you lawyers…try focusing on helping advisors getting engaged with plans rather than making the advice harder to obtain by participants. Plans should be paying for advice; otherwise it is unlikely participants will ever engage.


Stephen Winks said:

May 29, 2010 — 4:18 PM UTC

Vince Birley has it about right. Everyone is working within a limited latitude to execute in the best interests of the client. Thus advice is what ever each advisor deems it to be based on the advisory services support of their suporting brokerage/insurance/custody firm and their own knowledge, interests, technical proficiency. Individual advisors should not be required to reinvest advisory services support because their supporting firm will not acknowledge that advice is provided by their advisors. The institutional limitations of the advisors supporting firm define the level of counsel which is possible. The scale necessary to simplify execution which would make advice safe and easy to execute are beyond the reach of the individual practitioner. Thus, the market leadership vacuum. Those that have scale will not lead, and those that can lead do not have scale or the necessary capital resources. This is why many of us are so disappointed in the inability of Congress to protect public trust by not holding brokers and their supporting brokerage, insurance and custody firms to a fiduciary standard of care. This is more than a leadership problem, for the consumer and advisor there is an increasing question of professional ethics which the brokerage industry can not reconcile with their business model. This is the industry’s ethos to which DonTrone speaks.

I hope all of us who care enough to speak, can influence a more positive direction for the industry.

Mr. Lager is doing the best he can and does not deserve chastisement (especially those comments that are personally disparaging) for trying to find a way to serve his clients given the limitations he and everyone is working with. If there is chastizement, it should be directed toward the broker/dealers, insurance companies and custodians not supporting fiduciary standing. Within our reach are the necessary enabling resources which would safely bring easy to execute fiduciary standing with in the reach of every broker as their clients would allow. The industry simply chooses not to do the right thing to the great detriment of public trust.



Stephen Winks said:

May 29, 2010 — 4:50 PM UTC


That is my understanding as well, I could not cite the specific ruling, I believe I said it was 2007.



Phillip Chiricotti said:

May 29, 2010 — 4:51 PM UTC

Vince’s comments reinforce a common thread in this string of emails, i.e., generalists should not be servicing retirement plans. You may mean well, but your comments are a plan sponsor accident waiting to happen. My comments have nothing to do with opinions, legal counsel, preferred business models and they are not inconsistent. If you knew anything about ERISA, you would already know they are backed up by rules, regulations, court decisions and legislation. This is not a grey area. Advisors who provide participant level services and are paid from plan assets are plan fiduciaries. Period!. As a result, the plan sponsor is responsible, at some risk no less, in thoroughly vetting the fees and services provided by that advisor, including the verification on an ERISA Investment Bond. Do you know what an ERISA Investment Bond is? If you don’t like the rules, take it up with the Department of Labor. Your Golden Rule will do nothing but put the plan sponsor at risk. The goal of every legitimate consultant is to lower fees and reduce plan sponsor risk. If you want to play in the sandbox, learn the rules. If you want to provide participant level advice without becoming a plan fiduciary, don’t get paid from plan assets.


David Witz said:

May 29, 2010 — 8:18 PM UTC

Phil’s comments are on point and it would be incorrect to interpreted his comments as an attempt to discourage advice at the participant level. Advisors can provide advice to plan participants and bill the participant directly or bill the plan. If the plan is paying the fee for participant advice the advisor is a fiduciary under ERISA 3(21). It is just the nature of the ERISA environment. An advisor operating as an ERISA fiduciary is subject to an ERISA Standard of Care. This standard is much higher than the Golden Rule because the Golden Rule is subjectively based on doing to others what you’d want them to do to you. Whereas, ERISA states you can’t participate, conceal, enable or ignore a fiduciary breach or prohibited transaction. As the courts have properly noted it is the highest standard known to law and requires you take whatever action necessary to remedy the breach even if its to your detriment. Also, the AO 2005-23A does not prevent an advisor from rolling over plan assets to an IRA it just prevents the advisor from using their position as a fiduciary to increase their compensation. This restriction is found in the regulations under 2550.408(e)(1) and states, “a fiduciary may not use the authority, control, or responsibility which makes such person a fiduciary to cause a plan to pay an additional fee to such fiduciary (or to a person in which such fiduciary has an interest which may affect the exercise of such fiduciary’s best judgment as a fiduciary) to provide a service.” It would appear that you can roll money from a 401k to an IRA but under the condition that your compensation is no different. It is also important to note that the recently released participant advice regulations issued by the DOL for fee leveling are applicable to IRAs as well as 401k plans. In an interesting twist this appears to signal an imposition on advisors serving the IRA market with the obligation to provide advice under a fee leveling approach. However, enforcement authority for IRAs has been given to the Treasury Department so it is difficult to tell how this will evolve but it is cause to pause and consider that your business model for IRAs may change drastically in the future. What is clear from this string of comments is the need to provide ERISA education to advisors. An advisor that wants to progress will not obtain this education from their Compliance departments continuing education requirements at the level necessary to leverage your knowledge to build your business. You will need to seek out experts to associate with and learn from. You will need to attend industry functions like the CFDD conference in the October where a large number of expert congregate. You will need to acquire books like ASPPA’s 401k Fiduciary Governance Book, The ERISA Fiduciary Answer Book, and fi360’s SAFEs and CAFEs and read them and apply that knowledge to your practice. The Cambridge Handbook of Expertise and Expert Performance, The Supreme Court Daubert Decision and the Federal Rules of Evidence Rule 702 provide a clear path to evaluate your level of expertise. These three perspectives provide clarity as to the basis for determining if you are a qualified advisor/expert. Just because you are an investment expert does not mean you qualify to sell to an ERISA plan. The plan sponsor is obligated to retain expertise where that expertise is lacking and low on the list is a registered rep that can sell an investment product. Ironically, it takes more education to become a hair stylist than it does an RIA. This low hurdle means there are many successful sales people in the ERISA world that can sell but offer little ERISA expertise. The future will belong to the Advisor that is a specialist and the generalist will fade away as the demands continue to increase and plan sponsors become aware of their fiduciary obligations. Phil Chiricotti has raised this bar by developing the ERISA Advisor Evaluator which will help plan sponsors, attorneys and CPAs offer their clients an independent objective RFP process to vet the selection and monitoring of qualified advisors. His web site has extensive information on this topic under EAE...visit Bottom line, this tool will help to consolidate the business in the hands of qualified capable advisors thus forcing generalist to change, collaborate with those that are or abandon the ERISA world altogether.


Brian C. Hubbell said:

May 30, 2010 — 2:22 PM UTC

To All:

This string of comments demonstrates those who are knowledgeable about ERISA rules and those who are not. The latter is pervasive.

Vince Barley’s comment in his 3rd to last paragraph (dated 5/29/2010) appears to me he believes a Plan Sponsor is better off “legally” by offering participants “advice”. It’s just the opposite. A plan sponsor, purely from a legal standpoint, is better off NOT offering participants’ advice. Too often I’ve encountered RIAs and Registered Reps who believe ERISA requires a plan sposnsor to “educate” participants regarding retirement/investment planning etc. (beyond issuing an SPD, Summary Annual Report, or information required for plans seeking “404( c )” relief). ERISA does NOT require such participant education. ERISA does NOT require a Plan Sponsor to take action to help Participants’ achieve an adequate retirement income.

Too many of you are relying upon “logic” instead of the “law”. I completely agree that an “advisor” or “broker” must consider an individual’s retirement asset accumulation as part of their overall financially planning; however, getting paid from plan assets for any part of these services adds complexity that requires the knowledge and experience of an ERISA expert. Such experts (attorney’s and advisors) do in fact exist and have experience providing such counsel to plan sponsors.

Phil Chiricotti’s last two sentences in his comment date 5/29/2010 sum’s it up perfectly. If you don’t want to learn or access ERISA expertise in connection with your “individual” weath planning practice, don’t get paid from plan assets. And that applies whether your “planning” is conducted under an RIA model or through a B/D.

Brian C. Hubbell

Gravatar said:

September 8, 2013 — 4:34 PM UTC

I think this is very good to say.

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