ERISA has a rule that requires theri disclosures. (1) You must provide to a Retirement Investor a written acknowledgment that your firm and its IAR's are fiduciaires under ERISA and the Code, as applicable, with respect to any fiduciary investment advice provided by the RIA firm or its IAR's to the Retirement Investor; (2) you must provide to the Retirement Investor a written description of the services to be provided and the RIA firm's and its IAR's Material Conflicts of Interest that is accurate and not misleading in all material respects; and (3) prior to engaging in a rollover transaction, you must provide documentation of the specific reasons for the rollover recommendation to the Retirement Investor [in writing].
First of all, what is a Retirement Investor? Anyone who is a participant in a workplace retirement plan including any type of IRA account, including Roth IRA's, SEP-IRA's, Simple IRA's, and Traditional IRA's. It also includes 401k plan participants and a person entitled to benefits from a defined benefit pension or other type of retirement plan such as a 401a plan.
Complying with item number one should be done in your Investment Advisory Agreement (IAA). You should put the exact ERISA language and definition of a fiduciary in your Investment Advisory Agreement. In addition, you need a statement that your firm is a fiduciary that is easily seen and understood within your IAA.
Complying with item number two is a different matter altogether. It is a two part compliance issue. What services are you providing for your fee? This is a list of items that your firm provides. We think it is going to be difficult for RIA's to compare their fee against the fee of a 401k plan participant who has a choice to leave their old 401k at their former employer. In most cases, the RIA's fee is going to be significantly higher. So, how do you prove your value? With both a Fee and Services Comparison along with a Specific Reasons form. We design these customized to your firm.
Complying with item number three is a little more nuanced and should be tailored to your firm's offering. It should include the things that you are offering to the Retirement Investor that they cannot get via their workplace retirement plan, or their IRA type account. So, if you are transferring an IRA from Fidelity to Schwab, for example, then you need to list the specific reasons transfering this IRA is in the best interests of the Retirement Investor or client. Perhaps, it might be a good reason to have agreements with multiple custodians, so you can work with clients no matter where their account is located.
The Department of Labor can audit your firm for compliance and you have to keep records including doing a Retrospective Review of at least annually. If you are doing a lot of these type of transactions in a quarter, then you may want to do your Retrospective Review quarterly. This Retrospective Review has to be done by the firm's CEO. The CEO or owner cannot pass it off to an underling. They have to sign off on it.
The DOL's penalty for non-compliance is a hefty one. They can impose a 10 year ban on your RIA firm and or your IAR's for non-compliance. This means that you cannot do any ERISA transactions at all for 10 years! This could put you out of business, so it is a critical compliance rule that must be taken very seriously by the RIA firm and all of it's IAR's.
Here is a fact sheet published by the DOL on this new rule: DOL Fact Sheet
Here is the Federal Register version of the rule: Federal Register Version