Is Your Advisor Working In Your Best Interest?
The type of compensation received by retirement plan advisors is coming under Department of Labor scrutiny.
DOL Assistant Secretary Phyllis Borzi’s April 1, 2013 newsletter reminds plan sponsors that hidden fees and financial conflicts of interest may compromise advice they receive. She states that conflicted advice that puts the interest of the financial advisor over those of the client’s contribute to lower account balances at retirement. It is often difficult to determine whether an advisor is operating as a sales person or as a trusted investment advisor (see: http://www.dol.gov/ebsa/newsletter/).
Recently, ERISA attorney Fred Reish reported that the DOL levied a $1.266 million fine on an advisor providing fiduciary advice for a fee that also received 12b-1 fees (a marketing fee paid by a fund company in return for sale of the product) and other forms of revenue sharing from the mutual funds they recommended, claiming it was a prohibited transaction. Also, by taking undisclosed compensation, the advisor was setting its own compensation, becoming a de facto fiduciary, and using the status for its own benefit (see: http://fredreish.com/fiduciary-advice- and-12b-1-fees/).
Ms. Borzi advises plan sponsors look on the DOL’s Employee Benefits Security Administration (EBSA) website for some basic questions to ask advisors to better assure that the advice they are receiving is in their plan’s best interest. The questions presented in the DOL publication, “How to Tell Whether Your Advisor is Working in Your Best Interest: A Fiduciary Guide for Individual Consumers” are listed below:
- Do you consider yourself a fiduciary?
- If not, why not?
- Are you willing to act as a fiduciary with a duty to act solely on my behalf?
- Are you willing to disclose to me any conflicts of interest that may interfere with your acting solely on my behalf?
- Are you willing to put this commitment in writing?
- How are you compensated?
- Do you earn fees or commissions based on the number of products that I buy or the size of my investment?
- Will you earn a higher fee or other type of compensation if I invest in certain products you recommend, or
- will you receive fees for services related to specific investment products?
- Will you provide a list of the fees and commissions you receive either directly from me or from other sources in writing?
- Are you a licensed or registered investment advisor?
- Are you registered with the State, U.S. Security and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), or a Certified Financial Planning Board (CFP)?
- For how long? What is your experience?
- Who supervises you, or are you a sole practitioner?
- Do you have professional liability insurance?
- Have you (or your firm) ever been disciplined? For what?
Carefully review the information you receive to look for fees and expenses to be charged and possible conflicts of interest. If the information you receive is not clear or you see things that make you uncomfortable, ask questions. Finally, if the answers you receive make you uncomfortable, shop around until you find a relationship that gives you confidence that the advisor is working in your best interest.
Should you have any questions, please feel free to contact CapSouth at 1-800-929-1001.
