PLANADVISER - July/August 2018 - 28

says, " In the politest way you can, you have to tell the participant
something like, 'I'm sorry, but I can't make a recommendation
on what you should do. You have to make that
assessment, and I've tried to provide you with information
to help you make that decision.' "
Kaleda sums up this discussion: " You don't say what the
participant should do. You describe what the participant
could do, " he says. " And you describe the pros and cons of
each option in a balanced way. "
CAPTRUST sticks to education when discussing distribution
options with participants and does not give distribution
advice, Matheson says. " We have not felt it is appropriate for
us to step over that line, " he says.
CAPTRUST views it as a conflict not just to advise participants
to do a rollover to its wealth management division, but
to advise them to leave their money in a client's 401(k) plan.
" More often than not, our services are paid for by the plan,
meaning they are paid for by participants, " Matheson says.
" If we recommend that a terminating participant
stay in the plan-even if it's for good reasons
such as lower costs and better fiduciary oversight-maybe
we make an extra $40 a year if
that person then stays in the plan. "
FINRA 13-45 serves as a guideline
for CAPTRUST on the parameters of its
educational distribution-phase talks
with participants. The advisory firm also
customizes these conversations based
on each plan sponsor client's distribution
provisions and the distribution options
offered by the plan's recordkeeper, Matheson
says.
" We will talk through with the participants the four
options they have, as outlined in FINRA 13-45, and the
generic considerations for each of those options, " he says.
" When we have those conversations, it is pretty structured,
in terms of staying on a script. We're strict on the compliance
aspect of that conversation so that we don't inadvertently
give somebody advice on a rollover. "
Advice on Advice
Advisers willing to cross the fiduciary line in giving advice
on distribution options need a solid, objective process for
doing it, Kaleda says. " You could read the DOL regs to say,
'I can make recommendations without crossing the fiduciary
line, and thus a prudent process under ERISA is not
required,' " he says. " But FINRA has said that if you recommend
that an investor do a rollover, and in that context you
make a securities recommendation, you have to have some
process in place. "
FINRA 13-45 provides guidance on the process advisers
who give advice on distribution options need to follow. " It is
pretty clear what FINRA thinks: You have a 'suitability' obligation
that requires you to have a solid process to establish
why your recommendation is in the interest of the investor, "
Kaleda says.
The information given to a participant to support fiduciary
advice on distribution options should be specific to
the individual, Oringer suggests. " At some point, a fiduciary
adviser will want to do an analysis of whether an individual
participant's best interests are to stay in the plan or move
his money out of the plan. It won't be one size fits all. "
FINRA 13-45 says that advisers have to make a " reasonable
inquiry " into the participant's distribution options and
compare factors including the investments, services and
expenses, Buckmann says. For example, it says the adviser
should take into account whether the person getting advice
is satisfied with the investment options in the employer's
plan or prefers the broader array of investments available
in an IRA.
SageView will give fiduciary distribution advice to a
sponsor client's participants, Webster says. " The sponsor is
asking us, 'Can you be that independent [fiduciary adviser]
voice who will help the retiring participant make decisions?
Will you help our participants weigh , when they retire, their
decision on the benefits of keeping their money in the plan
vs. rolling it over to an IRA?' When we act in a 3(21) fiduciary
role to the plan, the sponsor sometimes also
will ask us to give advice to help its 55-and-older
employees understand the issues affecting
their decisions on Social Security, Medicare
and the [other] components they need to
prepare for retirement, " he says.
But before it gives distribution advice,
SageView utilizes its comprehensive financial
planning tools to first help a participant
understand his retirement income
goals and distribution goals. " Once he understands
those, we communicate to him about
what investment and distribution options are
available within the employer's plan to meet those
goals, " Webster says. " If those options can't meet the participant's
needs, plan B is, 'What's available outside the plan?' "
At plans advised by Pensionmark, terminating participants
who want to ask about their distribution options often
start with its call center. " That discussion is 100% strictly
educational, " Tanck says.
If a participant then wants to
get advice on his distribution options, that happens at the
individual adviser level. Many times, the Pensionmark plan
adviser refers the participant to a firm adviser who focuses
primarily on wealth management, though some plan
advisers have both specialties.
" We have a lot of plan advisers who have no interest in
doing individual wealth management, " Tanck says. " They're
very focused on being plan advisers. From a compliance
perspective, I would prefer an individual rolling out of a plan
to receive advice from a wealth management specialist. " It
helps ensure they will get the advice and service they need,
she says.
Even if a Pensionmark plan adviser who does take on
individual business handles it, the advisory firm gives clear
written disclosure to the investor about the implications of
transitioning from plan participant to wealth management
client, Tanck says. " The disclosure spells out exactly what
extra services he will get from that adviser as an individual
client and what the cost of those services will be, " she says.
" The fee itself is only part of the story: There has to be value
for that extra fee. " -Judy Ward
28 | planadviser.com july-august 2018
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PLANADVISER - July/August 2018

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