The Fiduciary Advisor s Rollover Toolkit Webinar Q&A

Transcription

1 The Fiduciary dvisor s Rollover Toolkit Webinar Q& 1. Q If we are a 3(21) and/or 3(38) fiduciary, what is necessary in our agreements to allow us to capture rollovers? The offering of rollover services must be separate and distinct from your role as a 3(21) and a 3(38) fiduciary and therefore requires more care than just the use of your service agreement. These services must not be related to your services agreement. We have created a complete procedural checklist to guide you as to when and how you may offer rollover services, as well as confirmation letters for the plan sponsor and plan participant that are distinct from your service agreement. 2. Q Why does it matter if we are compensated for other work as long as we are still servicing the plan in a prudent manner? The analogy I see is when you go to the dentist for a cleaning and they offer you teeth whitening for an additional charge, you don't have to do it but if you want to while you are there you can have your teeth whitened and there is no issue with that... same thing if you are servicing a plan for a fee and an employee wants to work with you personally because of a relationship that has formed over time. While your analogy makes perfect sense in the normal course of business transactions, it does not hold true in the ERIS world, where you are or may be deemed a plan fiduciary. Your influence and/or discretion is what the DOL is trying to guard against in protecting the interests of plan participants. Dentists tend to upsell which is exactly what the DOL wants to prohibit you from doing. Without the proper procedures and confirmation letters in place, documenting a clear understanding by the plan sponsor and plan participant of the nonfiduciary services you are offering, you run the risk of triggering a prohibited transaction. 3. Q What if I am a Registered Representative (Series 6 license) and not a Plan Fiduciary"? I merely service the plan, educate employees, and enroll them. ssuming that you are not an accidental fiduciary then you would not have a problem accepting rollovers. The question really is; what do you mean by service the plan? What function(s) do you take on that might deem you a functional fiduciary and therefore subject to the prohibited transaction rule? 4. Q I have clients whose 401(k) investments I supervise, but only those assets, not those of the plan generally. m I an external advisor or a plan fiduciary? Do I engage in a PT by recommending that this client rollover his/her 401(k) assets to an IR that I supervise? s long as you are an outside advisor and are not compensated by plan assets, you would not be subject to the PT rules. It still makes sense to follow the procedural checklist we provide in our toolkit and have the plan sponsor and each participant sign our disclosure confirmation letters.

2 5. Q How can an advisor acting as a plan fiduciary earning 20 bpts of plan assets make a recommendation to a participant to take an in service distribution then use that distribution to buy say an "expensive annuity" not be a prohibited transaction/breach of fiduciary duty? The PT ruling does not discriminate against which type of investments the advisor fiduciary makes. It merely states that any rollover recommended by a plan fiduciary advisor may be considered a prohibited transaction. 6. Q What happens if one of the IRs within the RI have nothing to do with one of the RI's 401(k) business? Can that IR be considered an "external advisor" even though the others are involved with 401(k) business? Be careful of connected parties or parties in interest. If the external RI, is part of the firm, and compensation is shared or related, then it may be considered a prohibited transaction, by virtue of the firm s fiduciary status and influence. There may be creative, yet protective, ways to deal with this matter and you should seek the advice of competent ERIS counsel. 7. Q It was my interpretation that if I am the advisor to a plan, and a participant wants me to work with them on their rollover, as long as I disclose to them that I will be compensated outside of the plan or in addition to what we get from the plan, and they sign off on that disclosure, it would not be considered a prohibited transaction. Is that accurate? This is not the basis of the prohibited transaction rule. It may still be considered a prohibited transaction because of your fiduciary status. Just because the client agrees to it, doesn t remove the prohibited transaction status. lso your behavior, i.e. when you offered and where you offered your rollover services, will greatly impact whether the PT rules are triggered. See our procedural checklist and confirmation letters for a prudent process to avoid PT status. 8. Q What if one of the advisors in a 3(38) firm is giving advice to the sponsor, and the others only guide the participants. Can those guiding the participants take rollovers if they have no part in directing the sponsor? If the advisors are members of the same firm, the fiduciary advisors status may be considered as the primary influence in getting participants to work with the firm s rollover specialists and trigger the PT. (See answer to question #6 above) 9. Q Can you review what would consider a Financial dvisor an external plan fiduciary? If I engage in a fee based financial plan and review someone s asset allocation on their retirement plan which I am not a rep or a fiduciary on; would I be considered an "External Fiduciary" to the plan under ERIS? Yes, as long as you have no role in managing the plan at the sponsor level and take on no fiduciary role or functions, than you would be considered an external advisor to the plan.

3 10. Q Who monitors these transactions the 401(k) Police? The DOL responds to all complaints brought to their attention by both plan sponsors and plan participants. Go to the DOL website and review the number of complaints they receive in a year to get a better feel for the possibility triggering a PT and the 401(k) police coming after you! DOL 2011 statistics: Q Why has the industry not pointed out to the DOL the disservice this is for the employees? The DOL has sought additional guidance and advice from the industry on this matter. 12. Q How do we protect ourselves and our business? re we sitting ducks? You are not sitting ducks. We created the Fiduciary dvisor s Rollover Toolkit to provide a simple and successful process you can follow to protect yourself when offering rollover services and to capture those cross selling opportunities. 13. Q s a simple advisor receiving commission, or a fee as an IR, on a plan that I am not a fiduciary, where do I fall on this? You need to review with your legal and compliance department what services you provide to the plan and whether these services could have you deemed a functional fiduciary (what we term the accidental fiduciary ). If they do, you need to follow our prudent procedural checklist and make sure both the plan sponsor and plan participants sign off on the confirmation letters our toolkit provides, before you offer rollover services or cross sell to plan participants. 14. Q What if there are no losses on their rollover? Losses or gains are irrelevant in determining whether there has been a prohibited transaction. 15. Q Can written disclosure of fiduciary status for a plan to a participant and any potential conflicts avoid the triggering of a prohibited transaction? Written disclosure is a good first start. You must also be clear about where and when you can and cannot offer your rollover services. Failure to do so could trigger the prohibited transaction rules. This is based on the Varity Corp v. Howe Supreme Court case. Our toolkit provides you with a prudent and procedural checklist of do s and don ts and when and where to offer our rollover services so as not to trigger a PT. 16. Q If you are a 3(21) Investment Fiduciary and a participant has an account at a former employer plan, and they contact you to request that you assist them with a rollover to an IR, can I help that participant with the rollover of plan assets from the outside plan (of which I am not a fiduciary) to an IR with me as the broker? If you assist an employee with rolling over funds from a prior employer plan, which you are not a 3(21) fiduciary, or any other IR or 403(b) money outside of the plan, you will not trigger a PT.

4 17. Q Is the kit applicable to automatic IR rollovers and does it cover what your fees can be in the IR product? n automatic rollover may trigger the PT if you are a fiduciary advisor and have recommended the advisability of the automatic rollover and receive compensation. You must be careful to follow a prudent process as to when, where and how you my offer rollover services. Certainly, the confirmation letter for both the Plan Sponsor and Plan Participant in our kit should be used in all cases. 18. Q If a participant terminates employment and contacts us to help with a rollover how does this rule affect our ability to assist a terminated employee? If you are a fiduciary to the plan, this could trigger a PT, unless you have followed the procedural checklist and had the model confirmation letters included in our toolkit signed by all parties. 19. Q If our 3(21) advisory contract with the plan is in the name of the firm, not an individual advisor, how does that change the process? You are an extension of the firm. The firm does not act solely as a fiduciary. Your actions and the services you provide would deem you as a functional fiduciary and therefore subject to the PT rules. 20. Q Is there anything in writing that specifically describes what services offered by a rep are considered by the DOL to be an "accidental fiduciary? The test for determining whether an advisor is a fiduciary for ERIS purposes is a functional one. If a personal acts or possess fiduciary like powers, the person will be deemed a fiduciary even if the person has not been formally appointed. 21. Q Does this program come with a warranty? In other words, if I use this will you support me from a legal perspective? We do not provide legal advice or support. The Wagner Law Group has provided all of the legal documentation and support in their accompanying white paper. You should also check your E&O insurance regarding this matter. 22. Q What will happen if the DOL+SEC adopt a common fiduciary standard? This is a very interesting question. ssuming the standard is the same, then you would have to address whether you are now operating as a fiduciary advisor to the plan based on the unified standard. 23. Q If the intention is so that an advisor doesn't recommend some action that will cause them to make more compensation, then if we make the same amount of money or less if the account is rolled over from the plan to an IR under our management, is there a problem? While this is indeed the intention, the compensation factor is not the only one the DOL will use to determine if a PT was triggered. Best to protect yourself by following a prudent process. We have provided such a process with our fiduciary advisor rollover toolkit.

5 24. Q re DB plans subject to these Fiduciary regulations? Yes, a DB plan is an ERIS plan and therefore subject to the PT rules. 25. Q Our BD does not allow us to serve as a fiduciary. Of course, we may be deemed an accidental fiduciary as you mentioned. So, if we use your system, with that in mind, could our BD argue that the agreements in your toolkit somehow are admittance that I am a plan fiduciary? The agreements do not acknowledge your fiduciary status to the plan. To the contrary, they acknowledge the non plan services you provide and that these non plan services, by their nature, will not involve any plan related fiduciary investment advice within the meaning of ERIS. 26. Q If I am advising on an account but have hired an outside entity (example: Morningstar) to act as either a 3(21) or 3(38) fiduciary does this relieve us of this problem? This would allow us to provide professional guidance without holding the investment fiduciary obligation. You may still be deemed a functional fiduciary because you have recommended these outside 3(21) services and by your actions are acknowledging that you have reviewed and recommended them. For specifics, you should contact competent ERIS counsel. gain, it is always better to have a prudent process in place for offering rollover services and clearly document your non plan services that, by their nature, will not involve any plan related fiduciary investment advice within the meaning of ERIS. Our toolkit provides everything you need to do so. 27. Q The DOL is concerned with protecting participants, but if you had been a rep on a plan for years and worked with all of the participants, but are considered a fiduciary to the plan, now these participants could be forced to go to "strangers" to handle their rollovers when they retire, when they have been working with the same advisor for this length of time. Is that really protecting the participants or acting in their best interests? It is for these reasons that we created the Fiduciary dvisor s Rollover Toolkit; so participants could select that year veteran plan advisor to work with and the advisor could elect to work with these participants as well. The toolkit provides you the prudent process you need to offer rollover services and the peace of mind that you can separate plan related services and non plan related services. 28. Q What about rollovers of IRs into a 401(k) plan? The PT rules do apply to IRs if the F is a fiduciary advisor to the IR. (See answer to question #4) 29. Q I assume if a participant/retiree rolls over their 401k to an IR, an advisor can solicit that retiree to rollover their IR to the dvisor's firm, and then manage the IR for a fee? s long as the participant rolled his or her 401(k) directly to an IR without that advisor s involvement or advice, then that advisor rolled over the IR to another IR, there would be no triggering of the PT rules.

6 30. Q If I buy the Rollover Toolkit and the laws change will the updates be included or offered for an additional price? Currently, any updates will be offered at no additional charge. 31. Q Is there any difference between working with employees who have already terminated employment vs. those active with in service withdrawal capabilities No. 32. Q Do we have the same prohibited transaction issue if a plan sponsor terminates a plan and the participants are looking for assistance on their asset roll out? If there is no plan moving forward, does the issue go away? ny and all assets from a plan, even a terminating plan, are considered plan assets within the meaning of ERIS, and, as such, are subject to the prohibited transaction rules. 33. Q Does the toolkit need to be approved by your BD? s with any plan related material, you need to have it reviewed by your individual compliance department for their approval for use. 34. Q What happens if the participant does a rollover to an outside alternative (i.e. not with me as broker), and then later wants to have me do a subsequent rollover to a product with me as broker/advisor. Can we handle the subsequent rollover? This would not be subject to the PT rules because the IR would be considered outside assets. 35. Q We have a plan that is terminating and we have served as the 3(38) for several years. Can we put this into place to capture the rollovers now with the Plan Sponsor/Participants? Yes. 36. Q What if a plan I work with is terminated due to a sale; can I work with employees on rollover services? ny and all assets from a plan, even a terminating plan, are considered plan assets within the meaning of ERIS, and, as such, are subject to the prohibited transaction rules. 37. Q Can you explain the different roles of a 3(21) limited scope, 3(21) full scope and a 3(38) at plan level? 3(38) has discretion over the plan assets. full scope 3(21) is the primary person or persons responsible for the oversight and maintenance of the plan. limited scope 3(21) has specific or limited duties running the plan; for example, they only are involved with plan administration functions or investment due diligence functions. For a more detailed description and analysis, you should contact competent ERIS counsel.

7 38. Q If the B/D prohibits the advisor from being a fiduciary, do the forms for the plan sponsor and participant that acknowledge that the IR rollovers services are not fiduciary functions, create the impression that other services may be fiduciary in nature? The forms are merely clarifying so there is no confusion. 39. Q Have these procedures served as the basis of a successful defense in a DOL exam or action brought against an advisor by a plan or plan participant? Not yet, as this is a new, very new, area of enforcement activity and litigation exposure. WagnerLawGroup.com Boston, M: (617) lso located in San Francisco, C and Palm Beach Gardens, FL The401kCoach.com info@the401kcoach.com (877)