401(k) Specialist Issue 2 - 2016 - 10

401(k) NEWS YOU CAN USE
Don Trone's Fiduciary Fight
FOLLOWING HIS TESTIMONY before the Department
of Labor hearing on Aug. 13, Don
Trone called to tell us our interview would have
to wait. He needed to decompress and was
going for a long walk on the beach. We have to
admit we were initially amused at the mental
image of the ex-military man holding a mug of
chamomile tea and staring off into the sunset,
but after the interview we understood his need
for the break.
He didn't win any friends with his testimony,
and per Trone's bulldog style, he didn't care. The
CEO of 3ethos, a consulting firm that specializes
in researching the interrelationships between
leadership, stewardship and governance, told
it like it is, or at least as he saw fit: that we're no
longer facing a crisis but rather in a crisis; that
the current DOL proposal cannot be effectively
implemented; that it wouldn't have stopped
Bernie Madoff. The hearing's sponsors might not have wanted to hear it
but, Trone believes, needed to hear it.
All well and good-but ask Trone what he thinks will fix the current
define how it is managed.
" We're no longer facing a retirement crisis;
we are now in a retirement crisis that, one can
argue, is all the more reason for the government
to have a hand in rollovers. "
The problem, of course, is how it's done, and
specifically how a fiduciary standard is defined
and implemented.
" Opponents of the DOL say the SEC should
be the first to define what the uniform standard
of care should look like, and there is legitimacy
to that argument. The reason is that the
advice provided to a retirement saver needs to
integrate elements of wealth management with
retirement planning. "
And then he drops a bomb. When he gave his
DON TRONE
testimony, he bluntly told them he did not see
existing fiduciary best practices in the current
proposal. That fact, when combined with what
crisis. He practices what his firm preaches, and far from a superficial
explanation, he delivers an extremely thorough and contextual answer.
" For some time, 10 or 15 years, we've been tracking the government's
growing interest in retirement assets, " he begins. " Broadly, it includes,
Social Security solvency, underfunded state pensions, reductions of defined
benefits plans with corresponding increases in defined contribution
plans and the general shift in retirement responsibility from companies to
individuals. "
He recalls a speech he delivered in Peoria, Illinois in the late 1990s
where he talked about the retirement pillars mentioned above. Coverage
of the presentation was picked up by the Associated Press and sent
nationally. The fallout was swift and immediate, with one head of a wellknown
retirement industry advocacy organization all but threatening him
to keep his mouth shut. It didn't work.
" The term 'uniform fiduciary standard' did not come about as a result
of Dodd-Frank, no matter what some people might think, " Trone says. " It's
something we've been talking about for more than 25 years. Today, there
are over eight million investment fiduciaries who manage 80 percent of
our nation's investable wealth. How they conduct themselves has a direct
impact on the fiscal health of our nation. "
Take rollovers for instance; Trone argues that if a dollar is set aside for
retirement in an account that is not currently taxed - as in the case of
a 401(k) or IRA rollover - then the government should have the right to
10 ISSUE 2 2015 | 401kSpecialistmag.com
they were proposing, meant the DOL's plan cannot be effectively implemented
for smaller accounts. Conservatively, he claims, a retirement
saver would need to have an account balance of $300,000 to generate
sufficient fees to support the costs associated with providing an ERISA
fiduciary standard of care. "
" What's an average advisor's minimum account size these days? I think
it's $500,000 and heading towards $1 million. Ray Ferrara, the outgoing
chairperson of the CFP Board of Directors, testified that providing
fiduciary services to middle-class savers isn't a problem. Well, his ADV
says his minimum account size is $250,000. That's 10 times the median
IRA account balance of $25,000. Let's see if Ray will be the first to lower his
minimum to $25,000. "
So that leaves two possible outcomes, according to Trone:
1). The DOL confirms that existing fiduciary best practices, such as
providing the client an IPS and a periodic performance report, will
have to be provided, along with the newly proposed rules. If so,
retirement savers with small account balances will be under-served.
2). Or, advisors will be told they only have to comply with the proposed
rules - advisors will not have to provide the bundle of existing fiduciary
best practices.
" The ERISA fiduciary standard of care was written to define procedurally
prudent practices for investment committees. The practices were never
intended to define a standard of care for individual retirement savers.
What may happen is that we end up with a bifurcated ERISA standard;
one for the plan sponsor and a second standard that applies to participants
and beneficiaries. "
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401(k) Specialist Issue 2 - 2016

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