The Rosenbaum Law Firm P.C. Blog

My latest JDSupra.com article can be found here.

I remember being involved in student politics and finding out that with any student leader, there were bound to be rumors about that individual whether the rumor resembled the truth or not.

So while I was with a client this week, who is in the recordkeeping business, we were trading notes on how overblown the rumors have surrounded the use of open multiple employer plans (MEPs).

A registered investment advisor client of mine introduced me to a potential sponsor of an open MEP, who advised me that they heard that MEPs were illegal. Where did that rumor come from? Perhaps, where all the rumors concerning MEPs surfaced from.

This recordkeeping client of mine advised me one of the premier ERISA law firms out there have contacted the certain Department of Labor official who supposedly made some offhanded remark about his concerns about MEPs and will issue a white paper concerning MEPs. Again, that is rumor too.

As an ERISA attorney and a former student journalist, I like facts, pure and simple. Rumors and false innuendo get a lot of people in trouble and have tarred quite a few people as well. I believe that open MEPs are legal and sound as long as they are structured properly (you can always ask for details, there is no special sauce except Russian Dressing) until the Internal Revenue Service tells me otherwise. And again, as my recordkeeping client pointed out, most of the decision making on what makes a MEP or not is the IRS and not the DOL.

I will keep helping people put open MEPs together until the government tells me otherwise. To succumb to rumors and possible false innuendo would do my clients and the followers of my writings harm.

Years ago, moist financial advisors were not aware of their role as a retirement plan advisor when it came to handling their plan sponsor clients. Most advisors were mailing it in, pocketing the quarterly fee without meeting with the client or by not understanding what the fiduciary process is all about.

Thanks to the Internet and changes on the industry like fee disclosure, I believe that mot financial advisors understand that they have a higher duty than their colleagues from their past. While they understand their obligation, many advisors don’t know how to fulfill it.

As part of my practice, I have been assisting advisors in pursuing a role as an ERISA §3(38) fiduciary or by developing a client service agreement that meets the section 408(b)(2) disclosure rules for a flat fee.

While many advisors around the country reached out to me, I am still amazed how some still don’t understand their role. I know a registered advisor practice when I worked for that certain third party administration firm and became rather alarmed that they never helped their clients in developing an investment policy statement or assisting in participant education.

So while most financial advisors are educating themselves over many of the changes in the retirement industry, there are still so many financial advisors still unaware of that role. Since most 401(k) plans are participant directed, picking top mutual funds for a fund lineup is overrated. It’s more abaout working with the plan sponsor and developing a fiduciary process that will help a plan sponsor minimize their liability under ERISA §404(c).

So while financial advisors are getting smarter about their role, there is still much for them to learn and do.

My latest JDSupra.com article can be found here.

When the great Bill Parcells (go Big  Blue!) was the head coach of the New England Patriots, he got into a tiff with owner Robert Kraft because Parcells wanted more of a say in the personnel decision making process. Parcells famously said: “They want you to cook the dinner; at least they ought to let you shop for some of the groceries. Okay?”  It sort of reminded me of my old law firm, where I was asked to feed people (by getting new clients) and I had someone who doesn’t cook (the Advertising Committee of one) tell me which ingredients I can use.

I admit it; I am more comfortable when I have control over things. When I have control, I succeed or fail based on my decisions instead of a bureaucracy that is less interested in my success and more interested in playing political games.

As someone who likes being in control, it should be no surprise that I like the proliferation of ERISA §3(38) fiduciaries and I think registered investment advisors (RIAs) who are interested in the retirement plan business should have the goal of offering it to some of their clients.

Once again, the use of ERISA §3(38) fiduciaries is a great fit for some plan sponsors who have none of the time or interest in keeping up their end in the fiduciary process of selecting plan investments and educating plan participants. The ERISA §3(38) fiduciary is a great solution for these type of plan sponsors because the fiduciary is defined as an “investment manager” under ERISA and assumes almost all of the liability (hiring a bad fiduciary is a breach of the plan sponsor’s fiduciary duty) of handling the investment decision making process.

I think advisors (as long as they are surrounded by a good team including a good ERISA attorney (cough, cough) ) should consider entering that space so that this solution could be offered as one of their services.

While some RIAs consider the liability aspect of it, the increased liability will always be offset by engaging in good processes (recording decisions, offering educating, memorialized investment choices in an investment policy statement) and by picking the right type of plan investments (most of these investment managers are using passive funds such as exchange traded funds, Dimensional Fund (DFA) and Vanguard index funds).

I always say that if you can’t do it right, don’t do it all. ERISA §3(38) fiduciaries should be for those RIAs that are serious about their trade as retirement plan financial advisors and should not be for those who don’t understand their roles as financial advisors for retirement plans. If you are serious about entering the space, speak to an ERISA attorney or speak to current ERISA §3(38) fiduciaries who partner with RIAs who don’t want to be in the space like the folks at Loring Ward and James Holland at Millenium.

In addition, I will be making an announcement in the coming year on how I will be providing a bigger role for RIAs who want to be in this field.

As an ERISA §3(38) fiduciary, you get to buy the groceries and cook, the only thing to avoid is burning the meal.

Some of my predictions have come true (I knew the IPad would be a big hit) and some have not (I thought Amazon.com was crazy to sell stuff besides books, music, and DVDs). However, that doesn’t stop me from making predictions on what will happen in 2012, which I think is a huge transitional year in the retirement plan business because of some major regulatory change.

As for the fee disclosure changes, many plan sponsors will still be apathetic about plan expenses and their duties under the regulations. Some providers will thrive under the fee disclosure model, others will not. Some of the plan providers that were a little trick as to hidden plan costs will try to find a loophole with the regulations to continue to hide their fee.

Many providers will still wait until the very last minute to make sure their client service agreements satisfy the fee disclosure regulations. I still know a great ERISA attorney who will draft such agreements for $1,000 (cheap plug).

The Department of Labor (DOL) regulation on financial advice will have a little effect. Third party advice providers like rj20.com will grow in business, but most advisors will not offer it themselves because of the huge audit expenses attached with offering it.

The DOL will implement a new fiduciary rule towards the last half of 2012, many broker-dealers (especially the smaller ones) will either partner up with ERISA §3(38) fiduciaries or leave the retirement plan business. The larger broker-dealers will find the way to survive in a business where they will have to be considered a plan fiduciary.

There will be more ERISA §3(38) fiduciaries entering the market, which means there will be some who do not have the background to effectively fill that role.

Multiple employer plans (MEPs) will continue to thrive, so the reports of their death will be greatly exaggerated. Expect the DOL to offer guidance on who may or may not be a plan sponsor of a MEP.  

Will these predictions happen? Who knows? We’ll see in the future.

My latest JDSupra.com article can be found here.

Like Newman in Seinfeld, I’m not a big fan of creeds. However, I am a big fan of rules that sound like creeds.  Here is a list I have developed on rules that retirement plan providers should live by. This is a work in progress and more will be added. Feel free to make suggestions and if they are any good, perhaps I’ll add it.

10.          Stick to what you know, you’ll stay out of trouble.

9.            You are only as good as your team.

8.            To not know is OK, to pretend you do is not.

7.            A good TPA is easier to find than a good bagel outside of Metro New York.

6.            The client will forgive you for almost anything, as long as you say you’re sorry.

5.            A reputation can take a lifetime to build and a moment to destroy.

4.            Remember your friends and those that refer you business and never go into business against     them.

3.            The more friends you make in the retirement plan business the better, the more enemies you                 make, not so much.

2.            Your word is your bond.

1.            The client always comes first.

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My latest JDSupra.com article can be found here.