The DOL starts looking at self directed brokerage accounts

They are making a big stink in my hometown of New York City as Mayor Bloomberg is trying to phase out large containers (more than 16 ounces) for sugar sodas that are being sold at restaurants, movie theaters, mobile food carts, and delis. I haven’t seen folks from New York City this much up in arms (even through 8 years of the Giuliani administration). While people think this is a draconian method or theft of liberty (you still can buy 2 liter bottle of sodas from the supermarket), this ban is supposed to curb a behavior because 58 percent of New York City adults and nearly 40 percent of city public school students are obese or overweight. While I drink soda like it’s going out of style, it’s diet soda and let’s face it, who really needs a 64-ounce container of Coke?

In another upsetting move with similar protest, the Department of Labor (DOL) pulled a last minute rabbit of its hat, by issuing a bulletin last month alerting the industry that self directed brokerage accounts that are offered by retirement plans should be treated the same way as other plan investments. Financial advisors are up in arms because they may have to help plan sponsors monitor the investments where a participant could do anything with the brokerage window that the plan sponsor gave them.

The DOL is worried that by not treating assets in brokerage accounts the same way as other plan assets, then that would give plan sponsors enough ammunition to simply turn their plan into all directed brokerage accounts, so they could eliminate their responsibility in monitoring,

I have never been a big fan of self directed brokerage accounts because they raise a whole host of issues dealing with plan discrimination issues as well as the simple fact that most participants who use this option probably do worse than participants who stick to investing in the plan’s funding lineup.

My feeling on the DOL’s crackdown is akin to what Son of Sam (David Berkowitz) said when he was finally arrested in 1977: “What took you guys so long?” I have always stressed that self directed brokerage accounts are a hidden danger for plan sponsors because plan sponsors are fiduciaries of all plan investments, including those sitting within self directed brokerage accounts and if a participant is investing all their assets in a double inverted Chinese exchange traded fund, that’s an issue that shouldn’t be ignored.

So while people are up in arms over this, my point is that brokerage accounts should have always had the same oversight and concern as other plan assets because the rules under ERISA require fiduciaries to serve a s a fiduciary of all plan assets.

So what’s the DOL’s game? Again, I think is just the DOL’s way of trying to mold behavior (just like Mayor Bloomberg) by trying to phase out something that they aren’t fond of, self directed brokerage accounts. Have they publicly come out against brokerage accounts? No, but they have been concerned with the retirement savings of plan participants and may see brokerage accounts as something that negatively affects the retirement savings of participants. Am I right or am I wrong? Time will tell.

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