401(k) Specialist Issue 2 - 2016 - 44

THE CLOSE by Ary Rosenbaum
401(k) Financial Advisors: Don't Be a Corpse
HISTORY IS LITTERED WITH the corpses of large corporations that didn't understand (or
willfully ignored) changes in their industry. They fell by the wayside only to be succeeded by
competitors that did. Examples include:
* Montgomery Ward was once one of the largest national retail stores. Unlike Sears, it faltered
post-World War II because it didn't recognize a demographic shift to the suburbs.
* Blockbuster Video, the most successful video rental company in the country, died
because it didn't foresee the viability of mail-order DVD rentals.
* Pan American Airways couldn't survive in a deregulated airline industry; one where
they were forced to compete with other carriers for international routes.
The lesson from each? Change with the times or the times will change you. It's especially
apropos for retirement plan advisors.
FEE DISCLOSURE WAS AS INEVITABLE
AS THE SUNRISE
Traditionally, the rules regarding retirement
plan fees created a conundrum. While
plan sponsors didn't have a legal right to request
or receive disclosure of all plan fees,
they nonetheless breached their fiduciary
duty if expenses were unreasonable when
compared with the larger marketplace.
While TPA fees for non-401(k) investment
plans were straightforward (base fee and
per-participant charge), daily valued 401(k)
plans were cloaked with fees and expenses
that plan sponsors didn't understand, and
many TPAs didn't want to reveal.
Whether it was 12b-1 fees, revenue sharing,
sub t/a fees, wrap fees or custodial fees,
certain TPAs simply weren't forthcoming
about the reimbursements they received. They wanted to create the illusion that expenses
were much lower than they actually were.
Yet two major market crashes since 2000 meant it was inevitable that participant 401(k)
losses would shine a light. It was therefore no surprise the Department of Labor implemented
fee disclosure regulations after Congress failed to promulgate change.
Three years after fee disclosure regulations were implemented, we are still seeing the
resulting changes-including lower price points, mergers and company exits altogether.
THE FIDUCIARY DEFINITION
I always found it particularly interesting that both brokers and registered investment advisors
could claim the title of retirement plan advisors. It meant each could assist plan sponsors
in drafting investment policy statements, select funds, educate participants and collect fees.
The one difference is RIAs had a fiduciary duty of care to the plan, while brokers did not.
The DOL found it interesting, as well. It decided to update its definition of a fiduciary,
44 ISSUE 2 2015 | 401kSpecialistmag.com
something that was sorely needed. Mutual
funds weren't as popular in 1974, 401(k)
plans didn't exist and no one knew what
a " daily valued participant directed 401(k)
platform " was. The DOL has issued proposed
regulations that will put brokers and
some TPAs on the same fiduciary footing
with RIAs. I believe they will pass.
For those advisors who are already fiduciaries,
they are (thankfully) ahead of the
curve. Some RIAs have gone further ahead
by opting to be ERISA §3(38) and §3(21) fiduciaries.
Broker-dealers, by contrast, have
three options if the change to the definition
of fiduciary is made: leave the retirement
plan business, become a fiduciary, or team
with a ERISA §3(38) fiduciary.
''Change with
''
the times or
the times will
change you.
ALWAYS BE OPEN FOR THE
NEXT BIG THING
No matter the nature of change-whether
its exchange traded funds in 401(k) plans,
an entirely new plan design like DB(K) or a
new plan provision like automatic enrollment-keep
an open mind.
When automatic enrollment was finally
codified into law, I suggested to my former
TPA that they consider highlighting its
benefits in order to grow assets as part of
a branding campaign. Nine years later, I'm
still waiting to hear.
Ary Rosenbaum is an ERISA/ retirement plan
attorney for his firm, The Rosenbaum Law Firm P.C.
At a flat fee, Ary helps plan sponsors reduce their
plan cost, facilitate administration, and limit their
fiduciary liability.

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401(k) Specialist Issue 2 - 2016

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