Castle Rock Investment Company

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Plan Administrator

The DOL Rule and Why Brokers and Insurance Agents Should be Concerned

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By Mack Bekeza

Are you currently a Registered Representative or an Insurance agent? If so, you will want to keep reading!

As you may know, the Department of Labor will have new regulations in effect on April 10, 2017, which will change how Brokers and Insurance agents conduct business with retirement investors.

For starters, when dealing with retirement investors, the broker or insurance agent cannot receive variable compensation. This means that someone receiving commissions, asset based fees, 12b-1 fees, etc. must create a uniform method of compensation.

Additionally, any investment recommendations must be in the retirement investor’s best interest, meaning that the agent or broker must have a thorough understanding of the client’s overall financial picture and cannot just rely on FINRA’s suitability standards.

Finally, if you still want to receive variable forms of compensation, you must be able to comply with something called the Best Interest Contract Exemption, aka the “BICE.” And, in order to truly comply, you have to be certain that recommending a product that will pay you variable compensation is in the retirement investor’s best interest.

The major caveat with complying with the BICE is that even though the client is fully aware of how you are compensated, if he or she believes the product is not their best interest, he or she can file a lawsuit against you. In other words, you can still sell commission based products, but don’t expect the BICE to bail you out if you are sued!

So, who is considered to be a retirement investor? To make this simple, do you sell or make investment recommendations for the following accounts?

  • ERISA governed Retirement Plans (with less than $50 million)
  • Non-ERISA Retirement Plans (e.g., Keogh, Solo Plans)
  • IRAs
  • Health Savings Accounts, Archer MSAs, and Coverdell ESAs

If you fall into one of these categories, you will want to seek advice on where to go from here! If you reside in the Greater Denver Area, Castle Rock Investment Company and The Law Offices of Ed Frado, LLC are hosting an event to educate Brokers and Insurance Agents on the details of the new DOL regulation on September 20th at Maggiano’s in the Denver Tech Center. If you would like to register, click here

We hope to see you at the event!

© Castle Rock Investment Company. All rights reserved. Please share your insights with us at info@castlerockinvesting.com or via phone at 303-719-7523

Declaration of Independence

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“Can you be more specific?”

Embarrassing, but true: the retirement industry is asking that of the US government.

The definition of a Fiduciary needs to be more specific because of cases where Plan Sponsors are legally charged unreasonable fees for a long time, but the Department of Labor’s interpretation is undesirable to Wall Street. Of course, Wall Street is on the receiving end of these unreasonable fees.

As an investment advisory firm who identifies in writing as a fiduciary to our clients, we uphold the interests of our client above those of any other interest, because we have no other interested parties. The unfortunate reason that other investment advisors will not agree to sign a fiduciary agreement with a client is because they are “promised” to a large company, who profits from a retirement plan through hidden fees.

While the Plan Sponsor is unaware of this other agreement, and often the Investment Advisor is not entirely upfront about this agreement with the Plan Sponsor’s representatives, it comes out in the end through hidden fees and a whole mess of ugly policies.

The sort of game run here should be illegal. Not because the Plan Sponsors are not careful, instead they often are smart and diligent, but because they are simply not protected by the law. Up to this point, the law is unclear. The Independent Advisor they supposedly hire is not, after all, independent according to a stricter definition now proposed by the Department of Labor, led by Phyllis Borzi.

Insist upon a clear definition of an independent advisor so that you know your advice comes for the interest of your retirement plan, and not for the interest of someone else’s quasi-legal activity. Sign the petition at http://www.thepetitionsite.com/414/401/760/tell-washington-to-stand-up-to-wall-street/

 

Michele L. Suriano, Accredited Investment Fiduciary™, is president of Castle Rock Investment Company, a woman-owned SEC registered investment advisory firm serving qualified retirement plans. www.CastleRockInvesting.com

Not that Complicated

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FSI Chairman Adam Antoniades, from Think Advisor
FSI Chairman Adam Antoniades, from ThinkAdvisor

In any fight, there are two sides waving their arms around.

The Financial Services Institute, or FSI, states in response to a recent White House memo that changing the way the delicate fiduciary system is run will ruin everything. The Financial Services Institute, or FSI, is in opposition to redefining the Fiduciary Standard as it is proposed because of various reasons, some more partisan than others. In general, the FSI puts investor advisors first, and the DOL puts workers and clients first.

How could increased or maintained responsibility of advisors lead to greater abuse of power? Among the first things said by the FSI is the atypical “hrrumph, well people outside the industry just don’t understand the complexities of how we deal with these things.” When in reality, it’s not that complicated: you protect the interest of your clients retirement if you are forced to put their interests first under the law, so why not stop dancing around this and just execute the priority anyway?

Demand protection for your retirement you deserve. Sign the petition to here at SaveOurRetirement.org: http://saveourretirement.com/take-action.html

 

Michele L. Suriano, Accredited Investment Fiduciary™, is president of Castle Rock Investment Company, a woman-owned SEC registered investment advisory firm serving qualified retirement plans. www.CastleRockInvesting.com

Risk Management: Employee Retirement Plans

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Risk ManagementCastle Rock jumps through hoops to be among the best investment advisors. Not every investment advisor goes through the same rigorous training because these hoops are not legally required. We do not think that making best practices a legal requirement will diminish our status as one of the best firms around, but we do think that selecting an investment advisor should be less risky for Plan Sponsors.

You are supposed to be careful of sales pitches that avoid using the term “fiduciary” but stress “education” instead, because those are not interchangeable services. The difference between these services would be like exchanging accounting for bookkeeping services, or medicine with surgery, or heads with tails in a coin toss. Providing education does not negate a need for a fiduciary; rather, a fiduciary investment advisor should be around for cases where education does not meet the plan’s needs, and an expert opinion is necessary.

How confident are we that Castle Rock is the place to turn? We are the best retirement investment advisor around. You can check our About Us section to be sure, or better yet Contact Us.

Our qualifications exceed all of these expectations, but you may want to check to see if your own advisor is able to eliminate some of the risks to you as a plan sponsor[1]:

  1. At least 50% of assets under management in qualified retirement plans (ours are 99%);
  2. Has an Accredited Investment Fiduciary™ or similar designation;
  3. SEC Registered Investment Advisor (RIA);
  4. Make sure your advisor has been working in the industry for at least a decade;
  5. Get a fee agreement that clearly states how the fees will be charged; and
  6. Make sure that fiduciary status is in writing.

To show your support for conflict-free advice in all retirement plans, please sign the petition here at: http://www.thepetitionsite.com/414/401/760/tell-washington-to-stand-up-to-wall-street/

 

Michele L. Suriano, Accredited Investment Fiduciary™, is president of Castle Rock Investment Company, a woman-owned SEC registered investment advisory firm serving qualified retirement plans. www.CastleRockInvesting.com

Retirement Security with Simplicity and Ease

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While “Retirement Security with Simplicity and Ease,” is Castle Rock Investment Company’s tagline. nothing is actually easy or simple about figuring out retirement plans. To give an example, we are in the trenches this week – up to our ears in work.

Our team works tirelessly because we care about our clients’ employees’retirement accounts that they have worked a lifetime to save. We admire institutions that find the best way to organize their plans and we love what we do becausewe believe thatfinancial futuresshould not be dependent on the rats and super-rats of finance.

  • We have the highest quality assurance procedures. Michele Suriano, President of Castle Rock, and Kristen Sanchez, Director of Communications, read and ask questions about every piece of material that is posted to our website or that is distributed to our clients.
  • We solve problems in a collaborative work environment. There simply isn’t enough space or time to sweat the small stuff here and we are always available to clients for resolving issues with their funds or for responding to their concerns about economic conditions, etc.
  • We complete projects on a timely basis.
  • Our flexible framework makes accurate work a top priority. Once I misunderstood an assignment and wrote about the wrong topic. Michele, our President, helped me re-organize my workflow to avoid such errors in the future. Not only do we strive for our work to be timely, it is also consistent and accurate.
  • We have strong working relationships with our clients. We spend time sharing information with our participants. Outside of our quarterly visits, we also offer educational services and comprehensive investment advising.
  • We utilize our resources efficiently and thoroughly. If we don’t know an answer, we will find one. We meet monthly to discuss improvements to our communications strategy and to brainstorm new ways to improve our client experience.
  • More than anything, we encourage our clients to know where we stand among our fellow pension advisors. We strongly believe in the work that we do and we are proud of our unique fiduciary role with our clients. A good fiduciary will re-evaluate their professional relationships at least every three years and we encourage our clients to challenge us and do the same.

We work very hard to make retirement simple and easy. So, from the bottom of a heap of binders, sticky notes, and pages – thank you for the opportunity to work for you. If there’s anything we can do to make planning easier, please let us know.

 

Katherine Brown completed a Master’s degree in Global Finance, Trade, and Economic Integration from the University of Denver. She can be reached at Katherine@castlerockinvesting.com.

It’s Time for Nondiscrimination Testing!

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Happy New Year from Castle Rock Investment Company!

The New Year means many tasks for your to-do list, which may include passing the Actual Deferral Percentage (ADP) test. If you fail the test, it means that your company’s highly compensated employees, or those who made more than $110,000 in 2010 or own five percent of the employer, made excess 401(k) contributions in 2011.

These excess funds must be refunded back to the employees by March 15th, 2012. Failure to do so could result in a 10 percent penalty by the IRS.

There are many reasons why you may have failed nondiscrimination testing, including that your plan is not properly aligned with your employees’ needs, or that your administrator is not properly monitoring the situation.

If you have questions about this process, please feel free to contact me at 303.725.7086 or by email at MSuriano@castlerockinvesting.com.

Best Regards,

Michele L. Suriano, QPFC, TGPC, AIF®
President

How to Hire Your Plan’s Auditor

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Generally, Federal law requires employee benefit plans with 100 or more participants to have an audit as part of Form 5500.  Selection of your plan’s auditor is one of the most important duties of the plan administrator so the Department of Labor provides guidance to selecting an auditor at http://www.dol.gov/ebsa/publications/selectinganauditor.html.

In addition, the American Institute of Certified Public Accountants (AICPA) provides a sample RFP and Auditor Evaluation Process Checklist on their website at  http://ebpaqc.aicpa.org/ in the Employee Benefit Plan Audit Quality Center.  They recommend plan sponsors verify three items:
  1. The auditor is licensed or certified as a public accountant by a State regulatory authority.
  2. The auditor does not have any financial interests in the plan or the plan sponsor that would affect their ability to render and objective, unbiased option about the financial condition of the plan (having a Madoff flashback?).
  3. The auditor has the depth of experience needed to perform this service by checking their references.  The DOL and AICPA state that the most common reason for deficient accountants’ reports is the failure of the auditor to perform tests in areas unique to employee benefit plan audits.
You may want to start a search on AICPA’s website if you don’t have an auditor in mind.  Center members are required to adhere to strict management practices including the selection of its ERISA employee benefit plan audits as part of the firms peer review reviewed by individuals employed by another Center member firm.
Remember that this year the auditor’s report will attached to the Form 5500 as a PDF file and transmitted electronically using the EFAST2 system.  You can also find more information on EFAST2 on the DOL’s website at http://www.dol.gov/ebsa/faqs/faq-efast2.html.