Page 41 - May-June-guide

MICHIGAN ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS | MAY – JUNE 2017 ADVERTISEMENT
DUE DILIGENCE UNDER THE NEW FIDUCIARY RULE
By Brian S. Lakkides, AIF®, Managing Director, Fiduciary Firewall Consulting, Inc.
By now you’re likely aware of the new Fiduciary Rule (the “Rule”) scheduled to go into effect April 2017 but may be delayed by the Trump Administration.
Despite the outcry from the nancial services industry, the Rule’s intent is to empower consumers by bringing clarity to their relationship with their nancial professional and improving transparency regarding the fees they’re paying in their 401(k) plans and IRAs.
Under the old rules governing the financial industry, there was enough wiggle-room to allow advisors to create the impression that they were operating in the best interests of their clients without actually becoming their client’s fiduciary.
The new Rule eliminates these “phantom fiduciaries” by defining a fiduciary as any person who receives compensation for providing investment advice to [a] a qualified retirement plan and/or its participants or [b] to an individual person regarding their IRA. Period!
A key factor broadening the Rule’s reach is the DOL’s interpretation that defines investment advice as a “call to action” or any communication that a client would reasonably view as a suggestion to engage in or refrain from taking a specific course of action.
A consequence of the Rule is that many financial professionals will now be formally classified as fiduciaries regardless of their expertise, experience, or capability to serve as a fiduciary for their clients.
Given the presence of these newly minted fiduciaries, it is critical that plan sponsors and investment committee members have a formal and defensible process for selecting 401(k) service providers. Think about this: “If you needed surgery, would you want it done by a surgeon with 20 years’ experience or by one just out of medical school?”
THE 5 ITEMS BELOW ARE WHERE YOU START. GET ANSWERS! IF YOU’RE INVOLVED WITH A 401(K) PLAN, YOU ARE RESPONSIBLE.
n READ THE SERVICE CONTRACT AND/OR INVESTMENT ADVISORY AGREEMENT. Quite often, plan sponsors unknowingly agree to accept fiduciary responsibility for items they thought were being handled by their service providers.
n DEMAND YOUR PLAN AVOID MUTUAL FUNDS THAT PAY OUT REVENUE SHARING OR HAVE PAY-TO-PLAY ARRANGEMENTS. You should ask the plan service providers to invoice the plan for the services they’re providing. This is more transparent and usually reduces plan expenses over time.
n ASK FOR A COPY OF THEIR PROFESSIONAL LIABILITY INSURANCE. Many financial professionals have policies that exclude or are silent regarding coverage for their service as a fiduciary.
n ASK FOR A COPY OF THEIR ERISA FIDELITY BOND. Advisors serving as an ERISA §3(38) Investment Manager are required to have a specific ERISA Fidelity Bond.
n FIND INDEPENDENT PROFESSIONAL FIDUCIARIES WHO ARE FORMALLY CERTIFIED. A good starting point is CEFEX.org. CEFEX is an independent global assessment and certification organization headquartered in Toronto. Their assessment process is based on ISO 19011 and is conducted in accordance with ISO 17021.
ABOUT THE AUTHORBrian S. Lakkides, AIF is the Managing Director of Fiduciary Firewall Consulting, Inc. and has been serving as an independent professional fiduciary for 401(k) plan sponsors since 2004. To contact Brian, call 248.330.4490 or send an
email to BrianL@FiduciaryFirewall.com.
Learn more at www.FiduciaryFirewall.com or www.TotalFiduciarySolution.com.
Brian S. Lakkides, AIF®, Managing Director,
Fiduciary Firewall Consulting, Inc.
Fiduciary Firewall Consulting, Inc. | 4139 W. Walton Blvd. Ste. E | Waterford Twp, MI 48329 | P: 248.330.4490 855.594.4273 | MICPA.org 41