401(k) Specialist Issue 1 - 2018 - 33

FIDUCIARY
" Now that's to be distinguished from
something like a T share. T shares, from what
I can tell, are almost like level fees. T stands
for transactional and is meant to coordinate
with the DOL rule by imposing uniform sales
charges across all fund categories-an attempt
to mitigate any conflict of interest. "
Her hesitation is warranted, and what
exactly terms like " T " and " clean " officially
mean is still being determined, with
Morningstar's Aron Szapiro pointing to
competing regulatory definitions, as well
as disagreement over whether sub-transfer
agency fees, or sub-TA fees, and other kinds
of revenue sharing are included.
As with most that's happened regarding
the fiduciary rule, it'll most likely be left to
the courts to make sense of it all (and why
we're speaking with a lawyer like Wagner),
however, she emphasizes that recent SEC reviews
have approved clean and T shares concepts.
Clean Shares were discussed favorably
by the SEC in a No Action Letter on January
11, 2017, and T Shares were the subject of
SEC IM Guidance Update 2016-06.
" T shares might be about a mutual fund
family with every fund in a lineup or arena
about the same cost. For example, I've heard
a number 2.5 percent or 250 basis points.
You're paying 250 basis points for, say, an
international fund, equity fund or smallcap
fund or what have you. The reason
that something like T shares is interesting
is because of the fiduciary rule. Where we
think the fiduciary rule is going when
everything is finally, finally, finally done is
with a prohibition in certain circumstances
of differential compensation. "
So, a T share is not a clean share, she
reiterates. And in an effort to avoid running
afoul of regulatory scolds, some product
manufacturers and money managers are
actually seeking out the opinions of their
distribution networks, for example broImportant
Update: Share Class Selection
Disclosure Initiative Announced
As we went to print, the SEC announced its Share Class Selection Disclosure
(SCSD) Initiative, in which investment advisors " have until June 12, 2018 to
self-report any conflict of interest situations in which clients were placed in more
expensive share classes of mutual funds and advisors received 12b-1 fees, without
proper disclosure, when lower-cost shares of the same funds were available, "
according to Wagner.
In its announcement, the Commission cited " potential widespread violations of
this nature. "
" The fact that the SEC is doing something like this is an indication of how prevalent
conflicts-of-interest are, and that's a scary thing, " says Barry Salkin, Of Counsel
with The Wagner Law Group. " However you feel about the DOL's fiduciary
rule, they were on to something. "
While noting there needs to be harmonization between the SEC and DOL on the
issue, " no matter what opponents of the rule say, it's not going away. It might not
have as many bells and whistles as the Best Interest Contract Exemption, but you
will see something, and deservedly so. "
ker-dealers and wirehouses, to determine
" what might be appropriate and what might
be reasonable. So, I think there's a lot of
interaction amongst the various players. "
When all is said and done, she notes,
the thinking behind T and clean shares
has existed for some time, but not widely
discussed.
" These very concepts have come to the
forefront as a direct result of the fiduciary
rule. We would not be even discussing clean
shares versus T shares but for the COI rule.
You must be careful if you are advising IRA
clients or pension plan clients or profit-sharing
clients on the different share classes. Not
all are created equally and if they're going
to be different expense ratios you have to
understand for what you are paying. "
For advisors in the current litigious environment,
her conclusion is something of
which to pay special heed.
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ISSUE 1 2018 | 401kSpecialist.com
33
" I'm not saying that one is more reasonable
than another, I'm really not. What I'm
saying is that you need to know 1) what
they are, 2) that you have a choice and 3)
what you are willing to pay for and decide
that it is reasonable. I think that is the issue.
Knowledge and prudent decision making is
very much power when it comes to differentiating
and determining the appropriateness
of a share class.
Since 1996, The Wagner Law Group has provided
a practical approach and sophisticated legal
solutions while offering the personalized attention
of a boutique law firm. Our practice areas include:
ERISA Law, Investment Management Law, Employment
Law, Labor and Human Resources, Employee
Benefits, Welfare Benefits, Privacy & Security, Corporate
Law, Tax, Estate Planning and Administration,
Real Estate and Litigation. Marcia Wagner can
be reached at marcia@wagnerlawgroup.com.
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401(k) Specialist Issue 1 - 2018

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