The Missing DOL FAQs on “Consumer Protections for Retirement Investors”

Those of you who subscribe to my book, ERISA Fiduciary Responsibility eSource know it’s on a searchable database with links to original government and other sources. This, of course, makes it easy for those who want to go to the horse’s mouth, rather than take my word for it. A few weeks ago I sent to my publisher, ERISApedia.com, my most recent additions. The additions covered important new FAQs that DOL issued to clarify the new fiduciary or conflict of interest rule (COIR) and included links to the original FAQs. Per our custom, we tested the links before we went “live” and found the link describing consumer protections for retirement investors did not work. Puzzled, I contacted DOL and learned that the link did not work because it had been pulled. 

So with no announcement, no fanfare, and no comment, the investor rights FAQ is gone. Officially, it does not exist. But I have a copy, and I think it is worth reading and sharing with my friends.

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The FAQ does at least two things. First, it is a parting shot and last defense of COIR from the departing Assistant Secretary of Employee Benefits Security Administration, Phyllis Borzi. Delivered just days before the inauguration, it responds to the two most persistent industry charges against the rule --- that it denies commission-based revenue or incentive compensation and that it will cause small retirement investors to lose access to investment advice. Second, it is a simple explanation of sound, best practice behaviors when hiring an investment adviser or deciding on an investment recommendation. These are best practice behaviors that won’t go away whatever the fate of COR and they are found in a ten-part checklist.

This is the checklist: 

One:

Will you acknowledge in writing that you are a fiduciary when you make investment recommendations to me? (i.e., Do you agree that you are legally required to make investment recommendations that are only in my best interest, and if not, why not?)

Two:

Are you complying with the DOL’s conflict of interest rule and exemptions on fiduciary investment advice? If you use one of the exemptions, explain the conflict of interest you have that requires you to comply with the exemption?

Three:

Do you have a credential or designation from an accredited program that requires training and holds its members to ethical standards? Does the organization let investors file complaints about the people they have issued adviser designations?

Four:

What fees and expenses will I be charged? Will you give me a list of those fees and expenses, and explain what each fee and expense pays for? Do I pay all of these fees and expenses directly to you or are any fees and expenses taken out of my investments?

Five:

Do you your firm get paid from any other sources in connection with my business with you? Do you or your firm pay anyone else because I opened an account with you or because I make investments that you recommend?

Six:

Do you make more money if I buy some investments instead of others? Explain why.

Seven:

Are there any limitations on the investment products you recommend? If so, what are they? For example, do you sell only your firm’s products (“proprietary products”) or do you sell products from other companies?

Eight:

Under what circumstances will you monitor my investments and make recommendations about changing my investments?

Nine:

What are your reasons for recommending a rollover from my current plan or IRA? Will I have to change my investments if I move my retirement savings to an IRA or a different plan? How do the fees and expenses compare to what I am paying now? Why do you think a rollover is better than leaving my retirement savings in my current retirement plan or IRA?

Ten:

What is your experience with giving advice to retirement accounts?   What customer references or customer satisfaction surveys are available for my review?

 I can’t think of one reason why a retirement investor would not want to ask these questions, whether or not the conflict of interest rule is completely gutted, whether it survives in some form, or does not change at all. In fact, 401(k) sponsors that fail to ask these questions (the ones that apply with them) and advisers who fail to address them could be chum in the water for a reasonably skilled attorney with a basic knowledge of ERISA and FINRA requirements.

If you would like a copy of the FAQ that also includes a very useful list of resources for retirement investors and other questions that should be asked, please contact me at [email protected]

 

 

Chuck Humphrey, Esq., is a former IRS and Labor Department attorney and the principal of the Law Offices of Charles G. Humphrey. He has provided counsel to plan sponsor and financial industry clients for over 35 years. He is also a consultant to Fiduciary Plan Governance and the author of A Guide to ERISA Fiduciary Responsibilities, available at ERISApedia.com.