California Mortgage Finance News (Summer 2018)


Get Rid of Fiduciary Risk THE PERFECT STORM D o you remember the movie “The Perfect Storm” that starred George Clooney and Mark Wahlberg? “The by CHRIS KELLY, CFP®, MBA, ChFC, CLU ,

The intent of these rules was to make it easy and clear for plan providers to fully understand the overall costs of their plan. Sadly, this was not the outcome. Few fee disclosures ever clearly spell out the “All-In” cost. To make matters worse, the U.S. Supreme Court later ruled that companies can be sued if they fail to continuously monitor whether fees are too high. The intent of the proposed fiduciary rule was to put any advisor on the hook to act in a company and participant’s best interests - seems shocking that this wasn’t already required. Since the rule has not passed, some advisors are still acting as “brokers” and not “fiduciaries” and claim to offer only guidance and not take on any fiduciary liability. Once the rule is passed, which we are firmly behind, the issue for companies will be that an advisor will have to follow a number of regulations but the DOL will hold the burden on companies to enforce whether or not those regulations are being followed. INCREASE IN DOL AUDITS A Willis Towers Watson survey conducted in 2016 found that nearly one-third of retirement plans were audited in the past two years. And it’s no wonder that companies fail 75% of all DOL audits as they are responsible for a 140-page legal plan document with 50 types of chores that need to be completed. There were also 201,894 worker complaints in 2015, and nearly 5% of plans filed a correction. …Fiduciary Risk continued on page 54

Perfect Storm” was a nor’easter that absorbed a hurricane and became a powerful cyclone. George and Marky Mark’s fishing boat was lost at sea after having the misfortune of being caught in the middle of it. Today, companies that sponsor 401(k) plans have the misfortune of being caught in their own perfect storm. New fee disclosure and fiduciary rules have passed or are going to be passed, and there has been an absolute onslaught of DOL audits and lawsuits. You may be overwhelmed by the pressures we are about to bring you up to speed on, but don’t worry we’ll go over easy steps you can take to get relief. I think we can all agree that transparent fees and advisors acting in our best interest is a good thing. The problem is that companies now take on the liability of making sure that the provisions of the fee disclosure and the proposed fiduciary rules are being properly monitored and applied. July 1, 2012 was the day that service providers (recordkeepers, TPA’s, advisors) had to provide a summary of fees in a particular format that outlined services being provided, whether or not fiduciary liability is being taken on, and what the fees for those services are. INCREASED REGULATION

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