Department of Labor Disclosures
The Department of Labor's (DOL) Employee Benefits Security Administration passed a Final Rule entitled the Conflicts of Interest Rule. It is located in the Federal Register as Volume 81, No. 68, dated April 8, 2016. It relates to 29 CFR Parts 2509, 2510 and 2550. This Final Rule is very comprehensive and there are multiple facets to complying with it. In layman's terms, what you will see from every financial advisor are disclosures that must be put on their web sites, so all prospective clients can see these disclosures. If you do not see these disclosures, then this should be a major red flag to you as it indicates that the advisor is not complying with this new Conflict of Interest Rule. The last day for full compliance with the DOL Conflict of Interest Final Rule is January 1, 2018.
The DOL has effectively equalized the playing field when it comes to financial advice delivery regarding retirement plans like 401(k)'s, Roth 401(k)'s, After-Tax Accounts, and other accounts like IRA's, Roth IRA's, Simple IRA's, SEP's, Health Savings Accounts and Education Savings Accounts. This Final Rule does not affect individual or joint accounts, commonly known as non-qualified accounts.
In simple terms, you cannot give advice on the above described plans without complying with the Best Interest Contract Exemption, or BICE. The BICE has several requirements that are explained in each of our Master Agreements below. In a nutshell, we must provide advice in your best interests and give several disclosures to you in writing and take the time to explain these disclosures to you. All of this is intended to help you make a good decision that our advice is in your best interests.
The DOL's Main Goal
In our opinion, the DOL's main goal was to make every financial advisor disclose all conflicts of interests, all fees and commissions that a prospective client might pay, what additional services they may receive and most importantly, whether the recommend transaction is in their best interest. The Final Rule is significantly more complex than the preceding statement, but this is our one sentence interpretation of this DOL Final Rule.
Disclosures for Our Firm
The Policies and Procedures Document
There are several disclosures that must be provided on this web site. First of all, each firm must provide their Policies and Procedures related to this Final Rule. The Policies and Procedures link below will provide all of our DOL required disclosures included in the document. In other words, all of the documents related to this DOL Conflict of Interest Final Rule are all wrapped up into this one Policies and Procedures documents.
The Master Agreements
Each firm must provide examples of their Master Agreements that they use with clients. In our firm's case, we have several different agreements. We have an Investment Advisory Agreement for use when we are your Portfolio Manager of your Accounts. We have a separate Retirement Planning Services Agreement for when we give advice to businesses based on IRS Publication 15-b. We have a separate agreement for Retirement Investors who are 401(k) plan participants. In addition, we have a separate agreement for our Goals Based Financial Planning services. A link for each of these Master Agreements is below.
Recommended Transactions Cost Comparison
As part of this DOL Final Rule, there is a lot of complexity to it in regard to prospective client disclosures regarding fees. However, we believe that we have managed to simplify things quite a bit with our one page Recommend Transactions Cost Comparison form. Each potential transaction needs to show the "do nothing" choice compared to the "recommended transaction." What is a recommended transaction? When you move from a 401(k) to an IRA Rollover Account, then this is an example of a recommended transaction. There are a lot of potential recommended transactions when you think about it. You might have a 401k, an IRA and a Roth IRA and you may be interested in moving all of those to our firm. If so, then we would need to provide you with three (3) different Recommended Transaction Cost Comparisons. It is not that we want to complicate things, but this is the way we have to comply with the DOL Final Rule. Moving money from a 401k to our firm requires one (1) form. Moving an IRA at another firm to our firm requries a second (2) form and then moving a Roth IRA from another firm to our firm would require the third (3) form. Hopefully, this makes sense and explains why we need a form for each of these three (3) recommended transactions in our example.
Services Provided Disclosures
One of the positive things about the DOL Conflict of Interest Final Rule is that we will now be required to tell you everything that we do for our fee. Prior to this Final Rule, it may have been implicitly implied that we provide a whole lot of extra services when compared to a 401k account, for example. However, now we will be able to list the bulk of our additional services in a comparison format, so you as a prospective client can compare our services to your other account. This will give you a better idea whether the additional services we provide compares favorably or unfavorably with your current situation. Further, it will act as a guide in helping you make a decision that is in your best interests.
Disclosures for Beneficiaries
Another new factor in regard to the Final Rule is that if you are a beneficiary, then you are also given these same protections. For example, if you are a spouse, or non-spouse inheriting a retirement plan, IRA, Roth IRA or other account covered by this Conflict of Interest Final Rule, then you will also receive a disclosure document explanining your distribution options including Recommended Transaction Cost Comparison and Services Provided Disclosure forms. Further, if a trust or the estate is listed as the beneficiary, then we have forms for those situations, too.
Our Firms Disclosure Documents
Last updated on June 3, 2016
The Disclosures for Account Holders and the Disclosures for Beneficiaries documents below are only sample documents. These are the documents that would provide you with the information that you need in order to help you make a determination whether the recommended transaction that we are recommending is in your best interests. You can print our Form ADV Disclosures below, however, you cannot print the Master Agreements or the remainder of these documents from this web site for intellectual property reasons. Rest assured however, that you will receive one or more of these Master Agreements and Disclosure documents any time that we enter into an advisory relationship or make a recommended transaction.
Policies and Procedures
- Goals Based Financial Plan Agreement - For use with a Financial Planning Fixed Fee Relationship
- Investment Advisory Agreement - For use when we Professionally Manage Your Account(s)
- Retirement Investor Agreement - For use when you want advice on your 401k only
- Retirement Planning Services Agreement - For use as a Fringe Benefit for Your Business
Disclosures for Account Holders
- IRA Distribution Options - Cost Comparison and Services Provided
- Roth IRA - Roth Conversion - After Tax Distribution Options - Cost Comparison and Services Provided
- Retirement Plan Options - Cost Comparison and Services Provided.
Disclosures for Beneficiaries
- Spouse Beneficiary Distribution Options - Cost Comparison and Services Provided
- Non-Spouse Beneficiary Distribution Options - Cost Comparison and Services Provided
- Trust Beneficiary Distribution Options - Cost Comparison and Services Provided
- No Beneficiary or Estate Distribution Options - Cost Comparison and Services Provided
Form ADV Disclosures
- Form ADV 2A Disclosure Document for Our Firm
- Form ADV 2B Disclosure Document on Richard Allison Johnson
- Form ADV 2B Disclosure Document on Stanley B. Rosenthal
If you have any questions, then please feel free to contact us. Thank you.
Warning for Compliance Firms, Financial Institutions (RIA firms, broker-dealers and insurance companies) and their Financial Advisors: The above documents are intellectual property and copyrighted as of May 9, 2016 by Richard Allison Johnson. All rights are reserved. If you copy the verbiage from these documents, then you will risk a lawsuit. If you would like to hire Richard Allison Johnson as a compliance consultant to help your Compliance Firm, Financial Institution, or Financial Advisors with similarly prepared documents, then call Mr. Johnson at (904) 460-2700.