DOL Probing Improper BD, RIA Compensation From ERISA Plans

The article cites one case in which DOL investigators alleged that a consulting firm and affiliated broker-dealer "received undisclosed and unauthorized compensation, and failed to timely provide promised commission rebates to certain ERISA plans." The consulting firm entered into a settlement, agreeing to pay over $300,000 and make changes to its disclosure processes.

As part of the investigations, the DOL typically requests a large quantity of documents related to both broker-dealer and RIA accounts. Overall, Reish says in the article, "much of the requested information is not readily available to advisers and broker-dealers and involves a fair amount of culling of files and records. The requests tend to be over inclusive, designed to generate substantial information and documentation."

Reish and his colleagues warn that with the "DOL's focus turning to plan and participant-level disclosures and investment fee and conflicts of interest concerns," the CAP program is likely to become "more prominent." In fact, Reish says, "we are aware of several broker-dealers recently receiving letters initiating DOL investigations."

RIAs and broker-dealers, Reish and his colleagues warn, should be aware of the CAP initiative and "consider examining their current practices and procedures with respect to employee benefit plan clients."

Reish recommends that RIAs and broker-dealers initiate an internal audit, or work with ERISA counsel in performing an audit. As part of this review, he says, "RIAs and broker-dealers should consider the services they provide to determine if they are acting as fiduciaries and, if so, whether their compensation is appropriate and permitted." Such a review should also preferably pre-date the efforts to meet the new service, fee and status disclosures that will become effective April 1, 2012, under Rule 408(b)2.