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The USI case created a sort of script for DOL investigators, so plan sponsors and advisers must ensure they know answers to key questions about their broker/dealers. “In my mind … this is not going to be the only case like that,” Roberts said, adding that he has seen an increase in investigations of broker/dealers and their registered representatives. Under the new Consultant Advisor Project (CAP), for example, potential conflicts uncovered in a routine plan investigation are providing DOL investigators a gateway into the programs, products and policies used by broker/dealers, he added. The scope of the DOL’s requests for documents and information is “quite broad,” Roberts said, and many stem from routine investigations of plan sponsors. Roberts emphasized three questions plan advisers and sponsors must know the answer to with regard to their broker/dealers: 1. Do you service, as an ERISA fiduciary, any plans that transact through a broker/dealer? 2. If so, do you understand, and can you describe, all forms of compensation received by the broker/dealer (e.g. markups, bank or money market sweep revenue, revenue sharing, 12b-1 fees)? 3. Have all forms of broker/dealer compensation been disclosed in 408(b)(2) statements? Plan sponsors who do not know the answer to these questions can be held personally liable, should an investigation arise, because not knowing this foundational information means the plan sponsor has failed to prudently select a provider and thus failed to comply with both 408(b)(2) and 404(a)(5) (participant fee disclosure).
The USI case created a sort of script for DOL investigators, so plan sponsors and advisers must ensure they know answers to key questions about their broker/dealers. “In my mind … this is not going to be the only case like that,” Roberts said, adding that he has seen an increase in investigations of broker/dealers and their registered representatives.
Under the new Consultant Advisor Project (CAP), for example, potential conflicts uncovered in a routine plan investigation are providing DOL investigators a gateway into the programs, products and policies used by broker/dealers, he added.
The scope of the DOL’s requests for documents and information is “quite broad,” Roberts said, and many stem from routine investigations of plan sponsors.
Roberts emphasized three questions plan advisers and sponsors must know the answer to with regard to their broker/dealers:
1. Do you service, as an ERISA fiduciary, any plans that transact through a broker/dealer?
2. If so, do you understand, and can you describe, all forms of compensation received by the broker/dealer (e.g. markups, bank or money market sweep revenue, revenue sharing, 12b-1 fees)?
3. Have all forms of broker/dealer compensation been disclosed in 408(b)(2) statements?
Plan sponsors who do not know the answer to these questions can be held personally liable, should an investigation arise, because not knowing this foundational information means the plan sponsor has failed to prudently select a provider and thus failed to comply with both 408(b)(2) and 404(a)(5) (participant fee disclosure).