fi360 Webinar Recording: The Combined Effects of the DOL’s Proposed Advice Regulation and 408(b)(2)

Fred Reish

CEFEX and fi360 sponsored attorney Fred Reish to provide a thorough overview of the proposed advice and 408(b)(2) regulations. If you are a plan fiduciary who has hired a person or firm to provide your employees advice on their 401k, or an advisor/broker that works with 401k participants, this is essentially a must-listen event. The following were a number of interesting points which affect plan sponsors and advisors:

  • Paradigm Shift – In Fred’s opinion, these regulations could change the face of 401k plans.
    • “Proposed regulation will cause the current practices of many financial advisers and benefits brokers to be considered fiduciary investment advice.”
  • All Advice is a Fiduciary Act – One time advice could be held to the same standard as an ongoing advice relationship, which is very common with 1on1 ‘recommendations’ or advice to participants, as getting in front of them on an ongoing basis can be very challenging due to schedule constraints.
    • Point to Consider – If the last time an adviser/broker was able to advise ‘Sally Participant’ on her portfolio allocation was some time ago, and the portfolio allocation is no longer appropriate, the adviser/broker could be held accountable. A significant amount of liability could now fall on them and their firm.
  • “96-1 Advisors” Need to Be Careful – There is a very blurry line between providing basic education and specific recommendations, which could now be absorbed into the fiduciary advice definition and responsibilities.
  • Written Disclosure as a Fiduciary is Required – “The 408(b)(2) regulation requires a written disclosure if a service provider “reasonably expects” to be an ERISA fiduciary.”
    • Point to Remember – It’s an adviser/broker’s actions that dictate whether they are a fiduciary, therefore just because they are avoiding a written agreement, that does not mean they are not a fiduciary. However, if they ARE acting in a fiduciary capacity, a Plan Sponsor should ensure that they have a fiduciary agreement in place with them.

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  1. Matt Iverson on March 14, 2011 at 1:16 pm

    At the 401kWire Influencers Summit last week, Fred talked about the coming conflict in the 401k industry being between the fiduciary and non-fiduciary. I’d be really interested to learn more about how 96-1 is changing and whether suggesting specific investment options, while caveating that there are other options to explore in the plan, is now (or will be) considered advice.

    It seems to me that participants want to be told what to do, but most advisors do not want to assume the fiduciary risks involved with advice. Could it be that non-fiduciaries will ultimately be pushed out of the industry?

  2. Chad Griffeth on March 20, 2011 at 6:39 pm

    Matt, I want to make sure it’s clear that 96-1 is not changing to our knowledge. Instead, Reish states that what many 96-1 advisors (per his experience) deliver is not adhering to the constructs of 96-1, and instead could easily fall under the umbrella of advice.

    Yes, participants want and need access to advice. I think this change will finally require firms/advisors acting in a non-fiduciary capacity to more clearly articulate their role and scope of services. Will it push them out of the industry? I think plan sponsors will determine that for us as to whether they keep them as a service provider to their plan.