Guest Columnist Scott Pritchard

Here is one of my favorite lines from a 34 page 408(b)(2) report from an insurance provider that I just read the other day. 

“We want you to know that additional compensation creates a potential conflict of interest in the form of an additional financial incentive for us to include a Fund on our Investment Option Menus and/or undertake more focused marketing for that Fund, as compared to other Fund.”

Chris, 

That should be framed.

Brooke

408(b) 2 has not been a flop. The Big record keepers clearly can not meet the new reporting requirements, creating opportunity for those innovators who can. It is not a question of ignoring the statutory requirements essential to anyone who renders advice to 401(k) plans. There are highly coveted solutions in the space presently in the process of a bidding war from our largest institutions. 

Heaven help those that are not aggressively trying to manage to the now required outcome.

The requirement still exists—it represents market share which will be lost for those that cannot adapt to include the largest and least nimble players in the business.

SCW

Why 408(b)(2)  is a flop for the 401(k) business and how RIAs can turn it around

Scott Pritchard:

401(k)

Advisors Access

BAM Advisor Services

408b2

Scott Pritchard

The days when RIAs were the outsiders at the 401(k) party are fast coming to a close. What's new is that the mass of 401(k) assets 
is getting critical at about $3 trillion; fiduciary advisors are getting appreciated; fat fees and questionable kickbacks are getting exposed and stepping out of line is getting dicier as the Department of Labor tightens the regulatory screws.

The old reasons why the 401(k) business is attractive are still in place: there are fresh assets pouring in every month and when employees leave jobs or retire, they produce rollovers that build up IRA accounts for financial advisors. The drawbacks of getting into the 401(k) business are still in place, too. Dealing with retirement assets is really a second line of business and it remains -- unless you overcharge with hidden fees -- a low margin business with high potential fiduciary liabilities.

Still, the outsourcers, infrastructure and accumulated knowledge for RIAs to capitalize on is growing daily and a the mega-shift of assets away from brokers is making the 401(k) business riskier and riskier -- to ignore.

401(k) Stories

The past two years have been some of the most momentous in the relatively short history of the RIA profession. Legislators and regulators have been gradually embracing the fiduciary standard, though whether it will fully apply to everyone calling themselves advisors remains to be seen.

The Department of Labor’s crusade to lower costs and increase transparency in retirement plans means a spate of new regulations affecting advisors and brokers in that market. Dodd-Frank Financial Reform, meanwhile, continues to unroll across the profession, with the biggest change being a shift to state oversight of RIAs with less than $100 million AUM. In this section, you’ll find continually updated RIABiz.com coverage on all these topics.

RIA Compliance

The disclosure requirement sat around so long that workarounds got developed and employers got comfortable in the boiling water 

Why 408(b)(2) is a flop for the 401(k) business and how RIAs can turn it around

Chris W.

Brooke Southall

Stephen Winks

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