New Fiduciary Rule N/A

Kelvin

Kelvin

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I got a call from the team that handles our company's retirement accounts. We have a few folks who have been in since day 1 and we have amassed some pretty substantial balances. The company is really small with only 10 of the 15 people here participating.

Our accounts are Goldman Sachs accounts but were bought through Edward Jones...now Jones is holding the accounts...what ever that means...

I was aware that the accounts were changed and the broker now has a fiduciary standard to go by but in this call today he was talking about changing the plans from commission based to fee based accounts...or more precisely making the choice of the two on a per account basis.

Does anyone here deal with this on a daily basis, handle these type accounts that can tell me what the real deal is?

I trust the guy but for some reason, when I pushed back on gaining a real understanding of the "why this had to be" , his tone of voice shifted so dramatically , it was impossible not to notice...

He told me that we were locked out of our accounts...which he explained that we could not further contribute until we have made these choices...this honestly shocked me...

Any real world insight is appreciated...via open forum or PM.
 
You need a financial advisor that is not the broker. There are some that specialize in small business.
 
I don't doubt that for a second Bill...I am trying to figure out the nuts and bolts of this change...the pieces are not lining up for me...
 
Something does not smell correct.
You need to very very careful here, look at the case law recently against Harvard, Tuffs.... Basically, as the plan administrator (you and the company are legally the plan administrator, no matter how much you try and evade this) you have a fiduciary responsibility to your employees. As such, you can be held liable for screw ups, especially if the broker screws up, you are left holding the bag.
Now, that you are rightly afraid, if the broker you are using is not willing to commit in writing to having your fiduciary interests as the first priority, then find a new firm ASAP.

I have been out of the HR/Admin game for a couple of years (went back to technical work), but you need to be really careful with this stuff. The best solution I found a few years ago was to pay a flat retainer fee to a company like State Street which assumed all fiduciary responsibility to administer the plan and select funds. The second best solution at the time was to cap the plan, and have people move funds into privately held IRA accounts.

Good luck,

Tim
 
Your instincts are good. Eddie Jones (aka "Fast Eddie") is a known problem in the investment business. My wife and I have a friend, very financially unsophisticated, where we recently found out that his Eddie Jones guy has sold him "five or six, I don't know" annuities. We are now trying to get him out of there.

You need to get out of there, too. I would look first to Vanguard as a plan administrator, then to Fidelity or Schwab. Vanguard will probably be the hardest to deal with because it will probably be a telephone relationship, but they will probably also be the cheapest. Fidelity, Schwab, or both may have offices near you where you can establish a face-to-face relationship.

As to the suddenness, undoubtedly Eddie has been dragging his feet hoping that the rule would not be put in place. This is a huge bomb dropped on their usual business of gulling the innocent and they are scrambling to survive. Large wrap fees are, I understand, the tactic of choice..
 
As a small company, we offer a matching IRA but no managed retirement account. It doesn't make any sense for a small company. The big dogs can afford the overhead but we can't. Consequently, as a small company, we have to offer a higher pay to compensate for no formal pension plan.

Me personally? Yes I have to fund my own retirement. I've hired an independent financial adviser to trade for me and find stable investment opportunities. He operates on a fee basis but 1% annual fee on assets managed is worthwhile when I calculate an average 7% aggregate return. Plus it's kind of satisfying to be able to fund one's own retirement independent of the corporate or government complex. I'm not there yet but getting there.
 
There was a statute change that requires those holding retirement accounts to act in their CUSTOMER'S best interest. Oddly, that wasn't necessarily the case before.
 
I'd ask on www.bogleheads.org - it's an excellent forum for people who are into low-cost investing, and it gets this kind of question fairly often. There may even be someone who's had the same issue lately, with the recent law change.

You could also hire a fee-only advisor local to you from www.garrettplanningnetwork.com. Fee-only means they'll charge you per hour for advice, so their incentives are aligned with yours.
 
Kelvin said:
I got a call from the team that handles our company's retirement accounts. We have a few folks who have been in since day 1 and we have amassed some pretty substantial balances. The company is really small with only 10 of the 15 people here participating.

Our accounts are Goldman Sachs accounts but were bought through Edward Jones...now Jones is holding the accounts...what ever that means...

I was aware that the accounts were changed and the broker now has a fiduciary standard to go by but in this call today he was talking about changing the plans from commission based to fee based accounts...or more precisely making the choice of the two on a per account basis.

Does anyone here deal with this on a daily basis, handle these type accounts that can tell me what the real deal is?

I trust the guy but for some reason, when I pushed back on gaining a real understanding of the "why this had to be" , his tone of voice shifted so dramatically , it was impossible not to notice...

He told me that we were locked out of our accounts...which he explained that we could not further contribute until we have made these choices...this honestly shocked me...

Any real world insight is appreciated...via open forum or PM.
Click to expand...

Are these investments in mutual funds?
 
Just moved all of my funds from Edward Jones for exactly the same reasons. I believed I was being lied to and was told as much by a friend who is an investment advisor.
 
flyingron said:
There was a statute change that requires those holding retirement accounts to act in their CUSTOMER'S best interest. Oddly, that wasn't necessarily the case before.
Click to expand...
This is the reason why the call. A new law. He was probably upset that he had to make the call and give the reasons why. Thats probably the reason for the unpleasantness.
 
@Kelvin
TL;DR: you need a better administrator.

What you're seeing is an effect of the DOL fiduciary rule. The short version is that the rule was announced early last year and was scheduled for implementation in April, but that was pushed to June 9th, 2017. Most of the education has been focused at financial planners since the rule primarily impacts qualified accounts. Almost every firm in the financial services industry that provides qualified accounts has shifter their business models because of the rule. What concerns me is that your current administrator hasn't educated you on the rule and the options available. I don't believe they'll advise you which option you should take since that could open the advisor or administrator to liability actions under the rule.

There's not enough to know about your particulars, but I would recommend you hire someone to give you advice on how to move forward based on your business desires and then find a competent administrator whether it's a bare-bones option such as Honest Dollar or a full-blown option from PWC, Schwab, or the likes.
 
Every business that wasn't operating in the customer's business. My independent financial advisor kind of tossed it off with the "This is the way I have always done business." Alas he's uncommon in the industry.
 
I pulled all my IRA and other money from another broker/dealer/advisor that's very similar to the one mentioned here after they shoved them into their own proprietary funds that (after fees) underperformed every peer fund. I used them initially because they held the stock/option funds & 401K for a former employer. I now self-manage with an online broker & use a retained financial advisor.
 
I was nervous about the change before it happened, but I can honestly say that since our account fees have changed from commission to a % of the assets held, my financial advisor has been more proactive. He's always done a great job, but the change gives us more flexibility with less nickel and diming.

Definitely make sure your advisor (or another advisor) educates you on the changes. As with any industry, EJ has great advisors and ones that aren't so great...best of luck finding someone who will look out for YOUR best interests.
 
tspear said:
Something does not smell correct.
Basically, as the plan administrator (you and the company are legally the plan administrator, no matter how much you try and evade this)
Click to expand...

Actually, not necessarily the administrator. Definitely the plan sponsor. The plan sponsor is only the administrator if there isn't any entity that has been so designated in the plan documents. But you are absolutely correct that as the sponsor, you are an ERISA fiduciary with fiduciary duties.
 
This seem weird that your firm's retirement accounts would be sold without any input from you, the plan sponsor. I am curious what role Edward Jones is fulfilling with respect to the plan. I don't think they can become the administrator without the plan sponsor affirmatively changing the plan to make them the new administrator. If they are just the broker-dealer with the accounts into which plan participants' funds are being deposited, then they may not necessarily be the plan administrator. Of course, to the extent that any entity holds funds of the plan, they are a fiduciary with respect to that role. But they may not owe fiduciary duties with respect to management of the plan as a whole.
 
I got the email from Edward Jones about my holdings a few months back. Had to move all my crap into a new account. Here's a summary of the changes regarding the old account and what I could/could NOT do after June 9:

• You can continue to contribute to this account only through automatic purchases set up before June 9, on a predetermined recurring basis (for example, a set dollar amount each month).
• You can continue to hold your investments in this account.
• You cannot transfer any investments into your account as of June 9.
• You can sell investments you own at any time and exchange most mutual funds within fund families.
• You can reinvest dividend and interest payments if the process to do so was established before June 9.
• If you own a variable annuity, you may be able to reallocate subaccount investments.
• If you own a fixed annuity, you may not renew it and keep it in this account. Our intent is to provide a new account for future fixed annuity purchases.
• All open buy and sell orders at close of business on June 8 will be canceled.

Full description of the rule here: http://www.investopedia.com/updates/dol-fiduciary-rule/
 
A little clarification on who's obligated to do what:

Brokers, Series 7 license: Until the new rule, these guys were only obligated to recommend "suitable" investments. IOW between two "suitable" mutual funds, they could and did recommend the one that paid them the most money. The new DOL rule wiped away the suitability standard for retirement accounts (which is all the DOL can regulate) and installed a "fiduciary" rule. A "fiduciary" is legally obligated to act in the best interest of the client. IOW, a fiduciary would have to recommend the least expensive of the the two funds. Note, too, that the suitability standard still applies to non-retirement investments.

Certified Financial Planners, regardless of license: These guys have received some on-line training, some in-person short courses and passed a test. The organization that bestows the CFP is an independent non-profit, but has a huge vested interest in minting as many CFPs as possible. (The guy the runs it earns over $1M.) I am told that CFPs are obligated by their contract with the granting organization to act as fiduciaries but AFIK there are no legal teeth to this.

Series 65/66 Registered Investment Advisors: This IMO is the gold standard. These guys have passed tests and are legally obligated to act as fiduciaries. If they fail to do this and are caught, they can lose their license and/or end up in criminal court. Now, haveing a Series 65/66 is no guarantee against idiots but it does theoretically minimized potential conflicts of interest and IMO an RIA's just making the effort to get the license is some kind of credential.

Investment Advisor Representatives: These are people who hold Series 7 licenses but who are working for a firm that is a RIA. I am a little fuzzy on the details but generally they hold only Series 7 licenses. LPL financial is a big company where I have run into IARs instead of full-blown RIAs. I consider IARs to be a little lower on the ladder than RIAs.

Go here: https://brokercheck.finra.org/individual/summary/222161 to check on a broker's history and credentials, including enforcement actions.
 
PPC1052 said:
Actually, not necessarily the administrator. Definitely the plan sponsor. The plan sponsor is only the administrator if there isn't any entity that has been so designated in the plan documents. But you are absolutely correct that as the sponsor, you are an ERISA fiduciary with fiduciary duties.
Click to expand...

Great insight. Great talking point.

PPC1052 said:
This seem weird that your firm's retirement accounts would be sold without any input from you, the plan sponsor. I am curious what role Edward Jones is fulfilling with respect to the plan. I don't think they can become the administrator without the plan sponsor affirmatively changing the plan to make them the new administrator. If they are just the broker-dealer with the accounts into which plan participants' funds are being deposited, then they may not necessarily be the plan administrator. Of course, to the extent that any entity holds funds of the plan, they are a fiduciary with respect to that role. But they may not owe fiduciary duties with respect to management of the plan as a whole.
Click to expand...

The accounts were not sold. We have been investing in Goldman Sachs mutual funds via Edward Jones but held by Goldman. This has always caused me to scratch my head. The funds are all invested in the same place...with the same account numbers...this new fiduciary rule has changed Jones' position in this process to where they can now hold the accounts in house.


Caramon13 said:
I got the email from Edward Jones about my holdings a few months back. Had to move all my crap into a new account. Here's a summary of the changes regarding the old account and what I could/could NOT do after June 9:

• You can continue to contribute to this account only through automatic purchases set up before June 9, on a predetermined recurring basis (for example, a set dollar amount each month).
• You can continue to hold your investments in this account.
• You cannot transfer any investments into your account as of June 9.
• You can sell investments you own at any time and exchange most mutual funds within fund families.
• You can reinvest dividend and interest payments if the process to do so was established before June 9.
• If you own a variable annuity, you may be able to reallocate subaccount investments.
• If you own a fixed annuity, you may not renew it and keep it in this account. Our intent is to provide a new account for future fixed annuity purchases.
• All open buy and sell orders at close of business on June 8 will be canceled.

Full description of the rule here: http://www.investopedia.com/updates/dol-fiduciary-rule/
Click to expand...

Great link. Thanks!!


airdale said:
A little clarification on who's obligated to do what:

Brokers, Series 7 license: Until the new rule, these guys were only obligated to recommend "suitable" investments. IOW between two "suitable" mutual funds, they could and did recommend the one that paid them the most money. The new DOL rule wiped away the suitability standard for retirement accounts (which is all the DOL can regulate) and installed a "fiduciary" rule. A "fiduciary" is legally obligated to act in the best interest of the client. IOW, a fiduciary would have to recommend the least expensive of the the two funds. Note, too, that the suitability standard still applies to non-retirement investments.

Certified Financial Planners, regardless of license: These guys have received some on-line training, some in-person short courses and passed a test. The organization that bestows the CFP is an independent non-profit, but has a huge vested interest in minting as many CFPs as possible. (The guy the runs it earns over $1M.) I am told that CFPs are obligated by their contract with the granting organization to act as fiduciaries but AFIK there are no legal teeth to this.

Series 65/66 Registered Investment Advisors: This IMO is the gold standard. These guys have passed tests and are legally obligated to act as fiduciaries. If they fail to do this and are caught, they can lose their license and/or end up in criminal court. Now, haveing a Series 65/66 is no guarantee against idiots but it does theoretically minimized potential conflicts of interest and IMO an RIA's just making the effort to get the license is some kind of credential.

Investment Advisor Representatives: These are people who hold Series 7 licenses but who are working for a firm that is a RIA. I am a little fuzzy on the details but generally they hold only Series 7 licenses. LPL financial is a big company where I have run into IARs instead of full-blown RIAs. I consider IARs to be a little lower on the ladder than RIAs.

Go here: https://brokercheck.finra.org/individual/summary/222161 to check on a broker's history and credentials, including enforcement actions.
Click to expand...

He is 63/77 and Series 7 registered/certified.
63 since 1996
66 since January 2017
Series 7 Since 1996
 
Kelvin said:
... We have been investing in Goldman Sachs mutual funds via Edward Jones but held by Goldman....
Click to expand...
The key questions on these are: Front end load? Back end load? 12b1 fees? Load funds with 12b1 fees are the ripoff that keeps on ripping.

Kelvin said:
He is 63/77 and Series 7 registered/certified.
63 since 1996
66 since January 2017
Series 7 Since 1996
Click to expand...
63 is just sort of a state-level Series 7. Series 77 no clue and Google seems to have no clue either. He probably does have one or more state insurance sales licenses. Sort of like a Series 7 for insurance.

The recent Series 66 is interesting. I wonder if Eddie encouraged or required this or whether your guy is planning to jump to a more reputable firm. It might be interesting to ask him.
 
FWIW, here is a related thread I ran across today on another board that I frequent: http://www.early-retirement.org/forums/f44/changes-at-edward-jones-84361.html

There are a lot of experienced investors on this early-retirement board and I think the majority of them run their own money (as do I). From the conversations, I'd guess that the average portfolio is north of $1M, maybe well north. Vanguard, Fidelity (aka "Fido"), and Schwab seem to be the firms most recommended by the crowd over there.
 
I suspect this is something I will learn more about. I'm a FINRA arbitrator so when you have a beef with your broker you're almost certainly bound to first try someone like me to resolve the situation.
 
flyingron said:
I suspect this is something I will learn more about. I'm a FINRA arbitrator so when you have a beef with your broker you're almost certainly bound to first try someone like me to resolve the situation.
Click to expand...
Well, that means you know a lot that you can't tell us. :(

Is that a full time gig or do you have a day job as well?
 
airdale said:
Well, that means you know a lot that you can't tell us. :(

Is that a full time gig or do you have a day job as well?
Click to expand...

Nope, everything I know is publicly available on the FINRA website. The only thing I can't talk about are the individual cases. The cases (at least for me) are few and far between. I'm retired.
 
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