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New fiduciary rules and group retirement accounts

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  • litovskyassetmanagement
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    Got notice today that there are new fiduciary rules going into effect in April of 2017.  These rules will effect group retirement plans and likely require notable increases in oversight and adminstrative costs as well as liability to the point that several investments banks may withdrawal from involvment in these types of plans going forward.  It seems that the will only involve work related and tax advantaged accounts, not personal taxable accounts.  It seems that Trump’s election has provided some uncertainty about it, as it may be abolished or delayed.  Can anyone provide any further details about this upcoming change?  There are a few articles online, but nothing recent or specific to the smaller business group plans and the changes that will take place.
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    If your group retirement plan is managed by a bank (or any entity that is not acting in a fiduciary capacity) chances are you can get a better deal elsewhere. Big entities, even if they do act as fiduciaries, are always very limited in scope, so they don't spend much time on anything but investments, so if other parts of the plan are lacking, you won't know it until you get audited.  Also, huge conflicts of interest exist for the plan sponsor when such entities also provide individualized advice to plan participants via brokerage windows.  That's a whole other can of worms.

    Any group retirement plan that still pays asset-based fees for ANY services and does not have a good ERISA 3(38) fiduciary managing investments (for a fixed fee) and a top notch TPA providing ongoing compliance advice should put together a committee and start the process of upgrading their plan and reviewing the plan's operations now, regardless of whether the fiduciary rule will come to pass or not.  Ultimately, fiduciary rule or not, many group plans are often mismanaged (to put it mildly) so they would be a magnet for IRS/DOL audits (especially if the group has non-HCE employees and/or the plan broke the rules).  All it takes is a sloppily filled out form 5500 - everything is electronic now, so mistakes are caught right away, and you don't want to end up on the wrong end of an IRS audit.  Audit or not, I think it is in all of the participants' best interest to switch to a low cost plan with comprehensive fiduciary and compliance oversight.  If no asset-based fees are paid by the plan and nothing is ever taken out of plan assets to compensate your providers, your plan wouldn't have to worry much about any new rules that would primarily affect those who are compensated from selling investments and/or getting paid via revenue sharing (this would be still allowed by the new rules, with a best interest contract or BIC).

    So as I said before, bigger entities will simply adapt and have their reps prepare BICs, and they can still be compensated from plan assets and from recommending investments that carry 12b1 fees, etc.  And nobody stops advisers from overcharging your plan via asset-based fees - even an ERISA 3(38) fiduciary can easily do that, so better make sure that all of your providers charge a fixed/flat fee.

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  • Allonblack
    replied
    I'd encourage you to listen to the planet money podcast on governmental rules: http://www.npr.org/sections/money/2017/01/18/510456884/episode-748-undoing-obama

    The TLDL is that rules, not like executive orders, or laws take a long time to become approved or removed. Changing the fiduciary rule might be a multi-year process and may never happen, even if it is desired by all branches of government.

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  • jfoxcpacfp
    replied
    Rumors about as to how it will affect investment management firms. We are holding off on making significant changes until we see what happens (more rumors about Trump). Larger firms with many layers of bureaucracy move slowly and must implement procedures and make decisions long before the effective date. Smaller firms can bide their time, especially if there are no conflicts of interest. Not to say that we won't have to make some disclosure changes, but it's far easier if you're already a fiduciary.

    Bottom line is that nothing is certain at this point.

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  • jacksonhole
    started a topic New fiduciary rules and group retirement accounts

    New fiduciary rules and group retirement accounts

    Got notice today that there are new fiduciary rules going into effect in April of 2017.  These rules will effect group retirement plans and likely require notable increases in oversight and adminstrative costs as well as liability to the point that several investments banks may withdrawal from involvment in these types of plans going forward.  It seems that the will only involve work related and tax advantaged accounts, not personal taxable accounts.  It seems that Trump's election has provided some uncertainty about it, as it may be abolished or delayed.  Can anyone provide any further details about this upcoming change?  There are a few articles online, but nothing recent or specific to the smaller business group plans and the changes that will take place.
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