Are You Ready To Answer These 8 401(k) Plan Fee Questions?

Are You Ready To Answer These 8 401(k) Plan Fee Questions?

“Prepare for adverse weather conditions”

A football coach of mine uttered as part of his pre-game pep talk, “prepare for adverse weather conditions” as we faced a weather quagmire. He wanted to encourage us to understand our obstacle and to stay focused on the task at hand.

Below is a list of eight questions focused on how much money you may make and possible perks of the 401(k) profession. A prospective or current client could ask these and more.  Are you ready to answer them?  Are you ready to explain and defend your answers?

  1. How much money will you make in a fee or commission if we select you and your recommendation?
  2. How much will you make as an ongoing fee or trailing commission?
  3. Is there a bonus you are eligible for that comes as a result of our selection of your recommendation?
  4. Are you earning more from this recommendation than you might from putting us in a similar product from a different company?
  5. Is any company that is part of your recommendation running any contests that might lead you to getting a free trip if we select your recommendation?
  6. Do any of the companies that are part of your recommendation offer “due diligence” trips or provide you with other forms of payment, say in points that you might redeem for merchandise?
  7. Do any of the companies that are part of your recommendation provide free food or tickets to sporting, concerts or other social type events?
  8. Finally, does your firm stand to collect any fees that you yourself will not share in as part of your commission because they have favored one product or another or limited their platform to certain products and locked out others?

Your answers can vary based on if you are serving as a Registered Investment Advisor or Registered Representative. The first two questions can be verified via fee disclosure forms.  All questions posed by plan sponsors and plan participants need a clear and concise answer.  You may believe that your responses will upend the sale.  You’ll see otherwise when you deliver honest and complete answers.  Prepare yourself for anything and stay focused on your task of managing and growing your business.

*Questions adapted from, “The 21 Questions You’re Going to Need to Ask About Investment Fees”, Ron Lieber, NYTimes.com 2/14/17

March 2nd, 2017

My First Sale Paid Forward By My Great Great Grandfather

My First Sale Paid Forward By My Great Great Grandfather

You’ll never forget your first professional sale. Mine was set up 75 or so years before it happened.  I passed the Series 7 test on September 3rd, 1983.  The next Monday I began a long career of trying to contact people to manage their money.  I started without any formal sales training, a four inch wide directory containing individual or company contact information in the Dayton Ohio area and a lot of excitement.  After two weeks of focused, persistent dialing without speaking with one prospect, I wondered what I had gotten myself into.  And I thought about how I could do things better.

I am from a Dayton family that for generations owned several small companies and participated in the development of the area. So I made a list of family held companies in Dayton, those with multi generation family ownership.  I called them asking for the owner or President, and thanked them for what their family had done for the Dayton area, hoping that would spark a conversation.

Requarth Lumber was next on the list to call. Requarth Lumber opened their doors in 1860 and supplied Orville and Wilbur Wright the spruce for their early flyers.  Mr. Requarth took my call and the conversation went something like this.  “My name is Chris Barlow and I am with SJ Wolfe here in town.  We provide investment management services.  I am calling to introduce myself and to thank you for what your family and company have meant to the growth of the Dayton area.  My family has been in the area for generations owning several Dayton area companies, like the Requarth family.”

Mr. Requarth said, “Thank you. What are the company names?”  I mentioned the Gibbons side of my family, and he stopped me asking, “Are you related to Michael Gibbons, Sr.?”  And I said yes, that he was my great great grandfather.  He then said, “I want to open an account with you.  Your great great grandfather did all that he could do to make sure that we stayed in business in the early years and we will never forget that.”  My great great grandfather owned the plumbing supply company for the area and was the developer for several downtown building projects.

Paying forward is real and you may never see the benefits of your actions. My great great grandfather probably had no idea that one of his great great grandsons would someday be a stock broker asking a lumber contractor of his to buy some municipal bonds.  What he did was to operate his personal and professional life with integrity and made such an impression upon another that 75 or so years later I was rewarded for his actions.  I hope that with my day-to-day personal and professional actions that I pay it forward for a future member of my family and maybe assist their first sale.

June 1st, 2016

Old is New Again The New Definition of a Fiduciary Looks Like The Original

Old is New Again     The New Definition of a Fiduciary Looks Like The Original

Forty two years ago the Employee Retirement Income Security Act, ERISA, was signed into law by President Ford on Labor Day 1974 and it contained a two part definition as to who was a Fiduciary Advisor to a qualified employer retirement plan.

  1. The person renders investment advice with respect to any moneys or property of a plan.
  2. The person has authority to render investment advice and is paid directly or indirectly for that advice.

In 1975 the Department of Labor issued regulations that significantly narrowed the breadth of the statutory definition of fiduciary investment advice by creating a five-part test that must, in each instance, be satisfied before a person can be treated as a Fiduciary Advisor. As a result of the five-part test, many investment professionals, consultants, and Advisors had no obligation to adhere to ERISA’s fiduciary standards or to the prohibited transaction rules, despite the critical role they play in guiding plan and IRA investments.*

Yesterday, April 6th, 2016 the Department of Labor issued the final version of the Conflict of Interest Rule, which redefines who is a Fiduciary Advisor.  The final version states a Fiduciary Advisor is any individual receiving compensation for making investment recommendations that are individualized or specifically directed to a particular plan sponsor running a retirement plan (e.g., an employer with a retirement plan), plan participant, or IRA owner for consideration in making a retirement investment decision is a fiduciary. Being a fiduciary means that the Advisor must provide impartial advice in their client’s best interest and cannot accept any payments creating conflicts of interest unless they qualify for an exemption intended to assure that the customer’s interests are protected.**

The new rule looks a lot like the original definition of a Fiduciary Advisor. The original definition changed in 15 months to the one we used for 40 years until April 2017.  Let’s see what happens to the new definition.  In the meantime, Financial Advisors that serve the employer retirement plan marketplace, congratulations.  You’re now Fiduciary Advisors (in April 2017).

* Department of Labor Employee Benefits Security Administration, April 6th, 2016 29 CFR Parts 2509 and 2510 RIN 1210-AB32, Definition of the term “Fiduciary”; Conflict of Interest Rule – Retirement Investment Advice

**The White House press release, April 6th, 2016. Fact Sheet: Middle Class Economics: Strengthening Retirement Security by Cracking Down on Conflicts of Interest in Retirement Savings.

April 7th, 2016