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You May Need to Fire Your Advisor


The coming 408(b)(2) regulations have given retirement plan sponsors plenty to think about. But many may have overlooked one critical change that comes with the new fee disclosure rules: the fact that they are now required to fire an advisor who doesn’t provide information about fees within 90 days after receiving a written request.

That’s right. If you ask your advisor to provide information about plan fees and they fail to do so, the Department of Labor (DOL) says you have to fire them. You’ll also need to notify the DOL. This version of the rule (which goes into effect on July 1) is far stricter than previous versions, which simply gave employers the option of firing an advisor.

So, are you going to have to give your advisor the boot? The answer is: It depends. The best advisors have already been disclosing all their fees to clients for years, long before the DOL got involved and started mandating those disclosures. Other advisors may have been less forthcoming with fee information, but most of them are aware of the new rules and are already taking steps to prepare for the mandatory disclosures. If your advisor falls into one of these two categories, you should be fine.

But there are likely to be a few advisors that won’t follow the new rules. If you’re unlucky enough to be working with one of them, you’re going to have to end that relationship, and that’s probably a good thing. That’s because any qualified advisor should really be able to furnish information about fees within a few days (and definitely within 90 days), especially after the 408(b)(2) rules go into effect. Any advisor who can’t do that isn’t doing their job.

The rule requiring plan sponsors to fire non-compliant advisors is a sign that the DOL is serious about the fee disclosure rules. The end result will likely be a thinning of the field, with less-competent advisors forced to improve their services or drop out of the business entirely.

Of course, as a plan sponsor, your responsibility doesn’t end with asking for information about fees from your advisor. You also need to inform plan participants of those fees and make sure that they are reasonable. If you’ve done a good job of choosing an advisor, however, this should be a relatively straightforward process. Many advisors have already started talking with plan sponsors about the 408(b)(2) rules and what to expect. If you haven’t heard from your advisor about the new fee disclosures, contact them and ask questions about what they’re doing to prepare. If your advisor is dismissive of your questions or seems unsure about what exactly is required under the new rule, it may be time to start shopping for a new service provider.  

 

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Comment   |  7 years, 5 months ago from Rocklin, CA