The Rosenbaum Law Firm P.C. Blog

I thought that the best way to develop relationships with plan providers around the country and get referrals for ERISA work for plan sponsors was to develop free content that these providers could use for their clients and solicit potential new clients as well.  Thankfully, I have had a very supportive audience that has appreciated my work and I’ve been able to build a practice thanks to it.

In the almost 9 years that I’ve developed my practice and written this content, I have never turned down a plan provider from disseminating my materials or even posting my articles directly on their website. The further it’s out there the more exposure I get, and the providers seem to enjoy using it.

I have never asked for anything in return for my content. Many plan providers have referred me business when there is an ERISA legal need for themselves or for their client. Most plan providers haven’t referred me work at all and that’s fine because I believe that with these plan providers, you never know when they will need me. I’ve networked with plan providers for some years, and some will refer me work many years after I first met them.

The thing that drives me nuts about my content are the typos. When you are an Army of One and you have no proofreader on site, a typo here and there will happen. One of my last email newsletters, there were several typos in a discussion about That 401(k) Conference because I wrote the content in Constant Contact that has no word processing function. So there was a spelling mistake and several grammatical mistakes.

So I was extremely irked when an advisor who I haven’t been in contact for 3 years, tells me that there were several typos in my last newsletter and that he can’t send that out to his clients. He then asked whether I could edit it, fix the errors, and send it back so he can distribute it to his clients. That irked me because it reminded me of the time when I worked at a law firm as a law clerk and we had a restaurant client who gave us free bagels every Wednesday. The secretaries were complaining about the quality of the bagel, but even as a native New Yorker, I didn’t complain because the bagel was free.

So I was offended when an advisor who has never referred me a dime worth of business and only contacts me when they need to ask me some questions, actually wanted me to take some time to re-edit my work and send it to his clients. I would have probably done it for any other advisor whether they referred me work or not, but he has always been an advisor that doesn’t contact me to say hello, but only contacts me when he wants something for free. Where I come from, we call that person a schnorrer, which is Yiddish for cheapskate or freeloader.

When I told him that I’m a sole proprietor and these typos are an unfortunate extension of that, I made a point to tell him that he clearly knew what was best in providing free content for his paying clients. I guess he didn’t understand my point because he was trying to say that providing him with free content would be beneficial to both of us and again, the free content is to really benefit him with the hope that maybe I can get some referral work but like some slot machines, this one isn’t going to pay off.

I’ve been providing content now for 9 years and this is the only time I’ve publicly complained about a provider using my content because I think that you shouldn’t abuse something that is free.

One of the best developments in the retirement plan business over the last ten years is the proliferation of advisors serving as an ERISA §3(38) fiduciary. The idea that a plan sponsor can shift almost all of their liability in the fiduciary process to an ERISA defined investment manager is attractive in a litigious happy environment. Sort of like having the folks at Stew Leonard’s to cook my annual Thanksgiving dinner, it allows the plan sponsor to delegate almost all of the headaches of being a fiduciary to the experts.

While I support the work of ERISA §3(38) fiduciaries, I have two concerns. They are two minor concerns that should not overshadow the good work of ERISA §3(38) fiduciaries.

First, I can’t put a sign on my front lawn that I am a lawyer unless I have been admitted to the state bar. The same can be said of advertising being a registered investment advisor (RIA) without the proper licensing and registration. However, I can claim to be an ERISA attorney without any experience and an RIA can claim to be an ERISA §3(38) fiduciary without any experience. While any RIA can learn to be an ERISA §3(38) fiduciary, it’s not something you can wake up one morning and can become one. So plan sponsors should be wary of people advertising themselves as an ERISA §3(38) fiduciary because not all ERISA §3(38) fiduciaries are created equally. The proliferation of ERISA §3(38) fiduciaries will create a herd mentality where I think so RIAs will tout their ERISA §3(38) services without understanding what that job entails.

So with the marketplace expanding with people claiming to be ERISA §3(38) fiduciaries, there will be some incompetent ERISA §3(38) fiduciaries out there who will make some mistakes that will lead to litigation and the issue is that ERISA §3(38) was drafted in 1974, years before there were ever 401(k) plans and daily valued, participant-directed plans. While ERISA §3(38) fiduciaries assume the liability of being an investment manager in the contract (if drafted correctly), will courts decide that what the ERISA §3(38) fiduciaries really are who they say they are? Are their function covered under a definition that was drafted before there was a 401(k) industry? I don’t know, I’m not a litigator. I am also not stating that hiring an ERISA §3(38) fiduciaries are a mistake nor do I want to spread any innuendoes (like what happened with multiple employer plans), I just think that plan sponsors should hire competent fiduciaries and if RIAs want to be in the §3(38) game, they need to learn the rules. Of course, any advisor interested in that side of the business should give me a call.

McDonald’s is the most popular hamburger fast food place in the country, but is it better than In-N-Out or Shake Shack? Of course, it isn’t, it’s not even better than Wendy’s.  Yet it’s the most popular fast food restaurant because of the vision of Ray Kroc, who was the first person to franchise a hamburger restaurant from coast to coast. Just because it’s popular doesn’t make it good. How many New York area pizza places are better than Dominos, Little Caesars, and Pizza Hut? I think everyone.

The point is that popularity doesn’t mean the best in quality. Yet there are so many plan sponsors that hire a plan provider just because they’re popular. Hiring a plan provider just because of the assets they manage/administer or the plans they handle is quite large on the list of plan providers. Bigger doesn’t mean better, being popular doesn’t mean competent. A plan sponsor that picks a provider that is just going with the flow is breaching their fiduciary duty if the popular choice isn’t a competent one. There are a lot of reasons that a plan sponsor should hire a certain provider, just being popular isn’t one of them.

My latest article for JDSupra.com can be found here.

I know of a financial advisor for a very long time, so long that he was focusing on fees, good fiduciary management, and fund performance, way before fee disclosure and other advisors made it fashionable.

Yet, I heard from him lately and he was telling me he was working with a third party administrator (TPA) with a less than sterling reputation when it comes to compliance errors. A financial advisor who talks about good fiduciary management and refers clients to bad TPAs is like the person talking about healthy living and smokes 3 packs a day.

As a financial advisor, you need to understand that good fiduciary practices by the plan sponsor client isn’t limited to the work you do. You need to understand that hiring a good TPA by your client goes a long way to avoiding compliance headaches for the plan sponsor. It doesn’t matter if you’re doing a great job as an advisor if the plan is in shambles because of poor compliance.

I have a lot of opinions and I’m not afraid to express them. One of the things that get me upset with businesses and organizations is unmet expectations. Whether it was my law school or some legal staffing agency when I was starting out, there is nothing worse than being told that you should be expecting something and for that business or organization to fail to deliver.

As a retirement plan provider, you should never overpromise and undeliver. If you promise clients the moon and you deliver something short of that, your clients will never forgive you for that. I’ve worked for third-party administrators, I’ve worked for law firms, and I’ve been on my own now for almost 9 years. So I know that the easiest way to lose clients is to promise a level of expectation and service that you fail to deliver. It’s just simply because if you promise that level and immediately fail to produce, the client will certainly know that from the start and will already consider replacing you from the get-go With clients, you always want to start on the right foot and I can say that most relationships with plan sponsor clients usually end after they get off the wrong foot at the start.

With Fidelity being under fire for “shelf space payments” from mutual fund companies to appear on their platform, it’s not surprising that ERISA litigators smell blood in the water like the sharks people think they are.

Three 401(k) plans sued Fidelity over these payments, claiming that the fee, which Fidelity characterizes as an “infrastructure fee,” increased fund expenses and wasn’t disclosed to 401(k) clients. The plans claim that’s a breach ERISA, which requires disclosure to plan sponsors of such marketing and distribution fees under ERISA Section 408(b)(2).

Years ago, I predicted that plan provider would develop new fees to offset the loss of revenue sharing and Fidelity’s own internal documents cite this as a reason for requiring payments from the mutual fund companies.

Fidelity is claiming that the practice of charging an infrastructure fee (or as I call it, “shelf space payments”) to certain mutual funds is because there is a cost for maintaining the systems and processes required for record keeping, trading and settlement, communications, and support for customers over the phone and online. They will also claim that the fee is not charged to plan sponsors or participants, so no disclosure is required.

While Fidelity may not have been required to disclose this to plan sponsor and plan participants and might win these cases on summary judgment, I believe that the Department of Labor will eventually close a loophole by suggesting that these payments should fall under the fee disclosure regulations because a plan provider (Fidelity) is receiving an indirect fee for their services.

It should also be noted that there is at least one other plan provider that does charge a “shelf space payment” and I’m sure you’ll hear about it when they get sued.

My latest newsletter can be found here.

My latest article on JDSupra.com can be found here.

Rocky Balboa explained to Adonis in the movie Creed, that he beat Apollo Creed for the heavyweight title because of time. Rocky said: “Time takes everybody out; time’s undefeated.”

What does that mean? That means time will eventually take out anybody and anything. Sears was the nation’s greatest and largest retailer, it was Amazon before Amazon. Yet time and complacency (as well as mismanagement) did Sears in and Sears saw the same thing happen to Montgomery Ward and apparently, didn’t take any notes.

There were a whole bunch of plan providers that went out of business after the Tax Reform Act of 1986. There were plenty who left the business after fee disclosure regulations. Time gets the best of everyone, time eventually gets to everyone.

How can you prolong time not getting to you? Always be a couple of steps ahead, don’t live in the past, and never be complacent.