As the 401(k) industry expands in both size and complexity, it’s harder than ever for advisors to help clients without inadvertently creating legal and compliance risks in the process. In the winter issue of NAPA Net the Magazine, David Levine explains how advisors have to focus on doing right by their clients while also staying on the right side of disclosure requirements.
Noting that plan advisors remain high on the DOL’s list of enforcement targets, Levine says that many plan sponsors expect advisors to ultimately be responsible for ensuring that the plan follows increasingly complex statement and disclosure guidelines.
In addition, Levine notes, as profit margins have slowly been sucked out of the TPA and record-keeping industries, more providers are charging for services that once were free. This puts more of a burden on the advisor to work with a plan’s fiduciary to choose which services should be added to a plan, such as those designed to help fiduciaries with required statements and notices.
Levine urges advisors to be cautious when developing disclosure documents that may not be legally mandated, such as fee policy structures and administrative manuals. Many of these tasks used to be largely the responsibility of TPAs and record keepers, he writes, but now are left up to advisors, who must help their clients without exposing both to risks.
“Advisors should proceed cautiously when working with these documents,” Levine says. “In many cases, errors in them can lead to dramatic financial exposure for plan sponsors and fiduciaries … and, by extension, the advisors themselves.”
He also warns advisors to be careful that they are not exposing themselves to conflict-of-interest claims under the DOL’s Fiduciary Service Provider Compensation Project, which regulates the ways that advisors can profit off of various plan offerings.
To read Levine’s column, view the archive of his columns here; to view the full 68-page Winter issue of NAPA Net the Magazine, click here.
