PLANADVISER - Spring 2023 - 17

" If that means folks who have made a recent
job change are better off staying in the plan,
that's an easy solution for us. "
KERRY WOODS
aren't necessarily in their best interests, " Francis says.
Still, he says, it is hard for advisers to ignore the profitability
of wearing both hats, serving the plan and offering
wealth management to participants. " That's how things
have evolved, " he says. " It's like a drug the industry can't get
enough of. So many of the big firms are publicly traded now,
so there's a strong profit motive. "
Francis also believes, he says, that more plan sponsors
are aware of the inherent conflict in such models and are
looking to firms such as his, vs. those dependent on assetbased
fees or product-based compensation.
Others say it is unlikely such a change will happen
any time soon. The metrics on wealth management firms
appeal to outside investors, and often the market values
those firms more than purely retirement plan advisory
firms, Goss says.
" They trade at higher valuations, and it's less of a
commoditized business, " he says. " Everyone is trying to
solve the same problem that recordkeepers have been trying
to solve for years: how to keep participants-from the early
stages of their career, through retirement-as clients. The
wealth part helps with that. " -Beth Braverman
KEEPING
COMPLIANT
A
plan
s a growing number
of advisory firms
offer in- and out-ofservices
wealth
management
participants,
to
regulators have gotten more
explicit regarding best practices
for
managing
the
inherent conflicts of interest
that accompany such an
arrangement.
In January,
the
Securities
and Exchange Commission
published a " Risk Alert "
encouraging
broker/dealers
to re-examine their practices
and policies as those relate to
the agency's Regulation Best
Interest, and, last year, the
Department of Labor outlined
new standards for advisers to
follow when advising participants
about rollovers.
" Those provide a path to
compliance, where advisers
can manage the conflicts,
but you really do have to
very
consciously
manage
them, " says David Kaleda of
Groom Law Group.
DIFFERENT APPROACHES
Firms use different methods
to manage this conflict. Some
have completely independent
divisions, with total separation
between the teams
focused on wealth management
and those working on
plan advisement.
" That's
one way to
approach it, but you still
have to be aware of compliance
[with the DOL and SEC],
to make sure you're not just
using this as an opportunity
to get a whole bunch of rollover
dollars, but that you're
really taking into account the
best interest of the participants,
both as individual
investors and as plan participants, "
Kaleda says.
Other firms are OK with
the same individuals or teams
serving as both plan advisers
and wealth managers but
with strict rules and oversight
DOCUMENTATION HELPS
When it comes to rollovers,
for example, some firms
require documentation that
establishes and records that
the adviser has shown why
it is in the participant's best
interest to move money
out of the plan, sometimes
including that from thirdparty
services that analyze
the effects of such changes.
Another potential area
of conflict would be if a firm
serves as a wealth manager
for a well-to-do business
owner who then hires the
within the firm, including
significant documentation.
Under Reg BI, firms need
to also regularly review their
policies and procedures to
ensure they continue to
meet the requirements as
they relate
interest, and regularly train
employees on how to identify
and mitigate such conflicts.
firm to help with establishing
a retirement
plan
to conflicts of
at the business. In its plan
adviser capacity, the firm
would need to make sure
it is choosing investments
in the best interest of all
plan participants, not just
the business-owner client,
Kaleda says.
Finally, firms should look
closely at their compensation
model, to reduce potential
conflicts in that area
and to avoid any model that
provides additional incentive
to advisers for selling specific
products or services.
" A big driver in this
industry is compensation, "
Kaleda says. " So if that has
incentives that could lead
one to not act in the participant's
or individual's best
interest, you need to think
about whether there's a way
to eliminate that incentive or
manage it in a way that mitigates
that conflict. " -BB
Participants | Spring 2023 | planadviser.com 17
http://www.planadviser.com
PLANADVISER - Spring 2023

Table of Contents for the Digital Edition of PLANADVISER - Spring 2023
