The Rosenbaum Law Firm P.C. Blog

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

A year or so ago, a good friend of mine who is an ERISA §3(38) fiduciary won a case from a disgruntled broker who claimed that all 3(38) services was just marketing. A 3(38) fiduciary that does a competent job and assumes discretionary control over the plan’s fiduciary process is more than marketing. But it’s a gimmick.

Hear me out, every service and every feature that a plan provider advertises is a gimmick. Now, there is nothing wrong with being a gimmick as long as there is some substance behind that service or feature. A gimmick is a special feature that makes something “stand out” from its contemporaries. However, the special feature is typically thought to be of little relevance or use. If you offer a service or feature that other plan providers don’t offer, just make sure the gimmick is something that plan sponsors could use. A fiduciary warranty that offers a plan sponsor absolutely zero protection is a gimmick with a feature that has no use. A good ERISA fiduciary offering substantive §3(16) 0r 3(38) services are offering a gimmick with a feature that plan sponsors could actually use.

My flat fee approach to billing my clients is a gimmick, but it’s substantive because my clients have cost certainty rather than the billable hour approach that never seems to have any cap or limit.

The point is that any feature or service that you will use will allow you to stand out among the crowd, just make sure that the gimmick has some substance, so your client doesn’t ask like Clara Peller in those Wendy commercial as to “where’s the beef?”

My latest JDSupra.com post can be found here.

One of my least favorite sayings is : “if it ain’t broken, don’t fix it.” I detest it because it suggests complacency of something that is mediocre. It kind of reminds me of when New York City Mayor Ed Koch was running an ill-fated campaign for a fourth term in 1989 and Governor Mario Cuomo said Koch was as comfortable to the voters as an “old jalopy.” It doesn’t sound like such a ringing endorsement.

One favorite saying of mine is: “change for the sake of change.” That means that sometimes people change just for the sake of change, regardless of whether it makes sense or not.

What does it have to do with retirement plans? I guess like Karnik the Magnificent, I’ll open up the envelope and if it ain’t broken, don’t fix it or change for the sake of change are two trains of thought for a financial advisor who gets a new plan sponsor client as it relates to the retention of the plan’s third party administrator (TPA).

Too often, a plan’s new financial advisor just changes the TPA for the sake of change or for the sake of getting them paid easier. Any change of TPA has to be what’s best for the client such as paying a more reasonable fee or replacing an ineffective TPA. However, I’ve seen too many TPA changes that are done just for change’s sake and that gives short shrift to the needs of the plan sponsor, especially when the new TPA is a payroll provider.

Again, I hate the if it ain’t broken, don’t fix it. I’ll spare my dislike to reiterate something that I have said repeatedly since I started my own law practice: good TPAs are hard to come by. If the TPA is doing a good job at a great price, keep them. There have been too many horror stories of plan sponsors changing TPAs to save a few nickels or to get the advisor easier access to their pay.

So if you’re a financial advisor, the retention or replacement of the TPA is what’s best for the client and not you. When you put your needs behind the client’s, you tend to a better job.

When I was 13 and I had my Bar Mitzvah, I plucked down about $2,000 in 1985 money for a state of the art Apple IIe with a monochrome monitor. One of the first pieces of software I bought was that top desktop publishing software known as Print Shop. I bought it through mail order (yes, there was life before Amazon.com) for about $30 and I remember that my wealthy uncle bought the very same program for my cousin for about $60. My uncle really thought nothing of the fact that he bought the very same program at double the price I paid. Sometimes people like to overpay.

I have a mantra that I hate to pay retail. I love a good sale. Yet there are some people who thumb their nose at paying at a discount or going to an outlet store. Somehow, it isn’t right for these people to pay less.

The problem is that plan fiduciaries such as plan sponsors and trustees don’t have that luxury. With their fiduciary duty on the line, plan sponsors need to pay reasonable plan expenses for the services provided. Plan fiduciaries can only determine whether the fees they pay are reasonable by shopping their plan to other service providers or by using a benchmarking service. If they don’t shop around and overpay in fees, they may subject themselves to liability from plan participants. It should be noted that plan sponsors don’t have to pick the cheapest providers because often, there is a reason why some providers are cheap.

How to determine whether a plan sponsor is pay way too much? Like Justice Potter Stewart would say, I know it when I see it. I have seen the information shown on Form 5500. Whether it’s the plan sponsor paying a Big 4 accounting firm $54,000 for a limited scope audit or another plan sponsor paying a broker 60 basis points (.60%) on a $14 million 401(k) plan, there are plan sponsors seriously overpaying for services. Plan sponsors need to check their fee disclosures from plan providers and need to shop it around. Simply accepting the fact that they are paying more than my uncle isn’t going to work.

My latest JDSupra.com article can be found here.

My latest newsletter geared towards retirement plan professionals can be found here.

My latest newsletter for plan sponsors can be found here.

When I was a freshman at Stony Brook University, there was a shooting on campus at a concert where the performer refused to perform after being 5 hours late. No one was shot, but it brought up the question on whether our university police force (Public Safety) should be armed since they weren’t at the time and had to get armed backup from Suffolk County Police. The President of the University, the late John Marburger said he was going to study the issue and decide whether Public Safety should be armed and the campus was divided on the issue. Two years later after so many committees and reports, Marburger made a decision that made no one happy, he made a compromise, where public safety would not be armed at all times, but would have access to their weapons by a lock box. Just like now, people don’t like the politics of compromise.

If you were busy like I was the last week of December (mainly with my kids being homes), you might have missed articles concerning the Department of Labor (DOL) and the proposed fiduciary rule. The DOL, for years, has been trying to expand the definition of plan fiduciary to include stock-brokers and put them almost on the same footing as registered investment advisors (RIAs) who take on that role. At the end of December, the DOL announced that they would hold off on proposing a new rule until August so they could work on it with both sides (those for it and those against it). While we know the stock brokers are against the rule, so many in Congress (who receive many contributions from Wall Street, regardless of political party) are against it too.

Like fee disclosure, I believe a new fiduciary rule will be implemented. The head of the Employee Benefit Security Administration, Phyllis Borzi has been trying at expanding the rule for years and I hate to bet against someone so determined as Ms. Borzi. However, like arming public safety at Stony Brook, both sides will not be happy. You will have a fiduciary rule that will be expanded that neither side will like because while it will add brokers to the rule, it may allow exemptions for commissions and other exemptions that may water down the standards for those brokers who will be added.  While people at both extremes of the political debate fail to to realize is that often any change is as a result of a compromise, it rarely is all or nothing. So you will likely see a new fiduciary rule in 2014, but something neither brokers or RIAs will be so excited about.

My latest JDSupra.com article can be found here.