Evolving Financial Services Model
In light of the new 408b(2) disclosure rules, pending investment advice regulations, proposed 12b-1 fee changes, Form 5500 disclosure and evolving standards, the days of servicing retirement plans as a non fiduciary advisor are coming to a close. Enforcement budgets have increased and the regulators fully intend to exercise their enforcement powers over the advisor community.
There are always exceptions, but suffering from a 2008 bear market hangover, non retirement plan priorities, rising costs, the new Form 5500, a lean staff and day-to-day challenges, the broker-dealer (BD) community - particularly the wirehouses – face major challenges in adapting to the evolving retirement plans market.
It may take a few years, but rather than give up their retirement plans business to independents and other specialists who are not hindered by slow to change organizations, some of the BDs will eventually adapt with new business models.
Most know they need to change, but they are in the wealth management business and don’t really know what to do. The industry's compensation and business practices were fine for retail business, but they were never a good fit for ERISA plans. Given the looming transformation, the CFDD will provide intellectual leadership to the new financial services retirement plans business model.
Consistent with our new initiative, a session on The Evolving BD/Financial Services Retirement Plans Model has been added to the CFDD's October 6-8, 2010 Advisor Conference Agenda. The co-presentation will be made by: Pete Swisher, Sr. Institutional Consultant, Unified Trust Company and Phillip G. Chiricotti, President, Center for Due Diligence. See detailed topic description below.
The Evolving BD/Financial Services Retirement Plans Model
-Phillip G. Chiricotti, President, Center for Due Diligence
-Fred Reish, Managing Director, Reish & Reicher
-Pete Swisher, Sr. Institutional Consultant, Unified Trust Company, NA
In light of the new 408b-2 disclosure rules, pending investment advice regulations, proposed 12b-1 fee changes, Form 5500 Schedule C disclosure and evolving standards, the days of servicing retirement plans as a non- fiduciary advisor are coming to a close. Enforcement budgets have increased and the regulators fully intend to exercise their enforcement powers over the advisor community. There are always exceptions, but suffering from a 2008 bear market hangover, non retirement plan priorities, rising costs, the new Schedule C, a lean staff and day-to-day challenges, the broker-dealer (BD) community - particularly the wirehouses – face major challenges in adapting to the evolving retirement plans market. Although most wirehouses allow a small group of dually registered, successful and highly qualified retirement plan specialists to acknowledge their fiduciary status in a written agreement that specifically provides for plan level advice, there are few restrictions that prevent generalists from marketing, selling and servicing retirement plans. By choice, force or ignorance, many generalists are providing plan and/or participant level advice while denying their fiduciary status. BDs who permit this practice must be prepared for an increasingly litigious ERISA marketplace or adopt new business practices to reduce risk. It may take a few years, but rather than give up their retirement plans business to independents and other specialists who are not hindered by slow to change organizations, some of the BDs will eventually adapt with new business models. Most know they need to change, but they are in the wealth management business and don’t really know what to do. Sponsors will eventually pull the plug on non-fiduciary advisors and those who fail to adapt could lose business and become entangled in a web of prohibited transactions. To provide guidance, numerous solutions to this dilemma will be discussed during this session, including a pure ERISA fiduciary model, a mid-tier fiduciary solution teamed with new & existing exemptions, outsourced solutions, mentoring and a limited non-fiduciary offering.
