Los Angeles partner Fred Reish was quoted in a BenefitsPro article warning broker-dealers that certain common practices they engage in will now be covered under new Department of Labor (DOL) 408(b)(2) fee regulation rules.
Fred, a partner in the Employee Benefits & Executive Compensation Practice Group, said, “It is common that, when an adviser refers an investment manager to an ERISA plan, the adviser will receive a referral fee, which is called a solicitor's fee. In most cases, the adviser will receive a fee for the referral that often continues so long as the plan uses the investment manager. Under the securities laws, the adviser provides a solicitor's fee disclosure statement to the investors.”
It could be interpreted under ERISA that the adviser becomes a covered service provider because they provided a service to the plan. According to Fred, the adviser making the referral is acting as a registered investment adviser and as a representative of the RIA, and an RIA that provides direct service to a plan is considered a covered service provider.
The article continues by quoting a May 2012 client bulletin, written by Fred, fellow Los Angeles partner Bruce Ashton and counsel Summer Conley, warning broker-dealers about the disclosure rules. "If a covered service provider fails to make timely disclosures, the arrangement becomes a prohibited transaction, resulting in loss of the payments as well as penalties and interest," the bulletin said.