PLANADVISER - March/April 2012

INQUIRING MINDS

New fee disclosure regulations will prompt questions. How advisers respond can help set them apart. FosTEr

Financial advisers who serve the retirement plans marketplace face new challenges in 2012 as enhanced disclosure requirements for commissions and fees associated with defined contribution plans take effect. While everyone favors greater transparency, advisers know that conversations about money can be awkward and potentially challenging, even under the best of circumstances.

But challenges often equate to opportunities according to The Hartford’s E. Thomas Foster Jr., vice president and national spokesperson for retirement plans. Foster says the new regulations should be viewed by advisers as a platform to take their retirement plans practice to a higher level and, ultimately, highlight the value they bring.

PA: Tom, what do the new regulations require and
why do you view them as potentially challenging for
advisers?

Foster: The new regulations that advisers are most worried about come from the U.S. Department of Labor (DOL): participant-level disclosures, or ERISA Section 404(a)( 5), and plan-level disclosures, also known as ERISA Section 408(b)( 2).

Starting May 31, 2012, 404(a)( 5) requires ERISA plan sponsors to proactively disclose to all eligible employees, plan participants and beneficiaries the fees paid by retirement plan participants. Those fees include expenses for investment option management, administration and recordkeeping.

Later in the year, 408(b)( 2) will require service providers to provide plan fiduciaries with the necessary information to determine whether an arrangement is reasonable. This will require disclosing to plan sponsors the compensation paid to financial advisers and/or other intermediaries, as well as to the recordkeeper.

PA: How much change will this require for
recordkeepers, plan advisers and plan sponsors?

Foster: When you examine the requirements for 404(a) ( 5), you see that many plan sponsors and providers already make this information available. However, it has not always been easily accessible by employees who contribute to their employer’s retirement plan. Some participants may even assume they pay no fees. Many sponsors will be looking to their advisers for help with making sense of these fees and explaining them clearly to their plan participants.

The bigger challenge may be 408(b)( 2), which clearly makes some advisers uneasy. Talking about commissions with a client can bring out the chicken in all of us. But there is a silver lining in what some may view as a cloud on the horizon.