Broker-Dealers and Investment Advisers Subject to Significant Disclosure Obligations by Department of Labor


The DOL recently issued interim final regulations under Section 408(b)(2)of the Employee Retirement Income Security Act of 1974 (ERISA). The amendment is a fee disclosure regulation which will require fiduciaries and certain service providers to employee pension plans to disclose additional information, including the reasonableness of compensation and potential conflicts of interest that may affect the service providers’ performance.

The purpose of this regulation is to require plan service providers to provide sufficient disclosure to the plan sponsor and fiduciary to enable them to fulfill their obligations in determining both the reasonableness of what is being paid, and the potential conflicts of interest that may affect the performance of those services.

Based on the client base and services provided, both investment advisers and broker dealers will be impacted by the changes in ERISA, which generally become effective on July 16, 2011. Investment advisers, broker-dealers, as well as affiliates and other direct or indirect providers of financial services to plans or entities in which they invest should:

• Take inventory all of their covered plan clients;

• Determine what services are provided to those covered plans;

• Determine the status of such services (i.e., fiduciary or non-fiduciary);

• Determine the direct and indirect compensation related to those covered plans and the plan services provided;

• Meet with ERISA counsel to determine whether such services are in fact impacted by the regulations;

• Consider whether current contracts or arrangements, or those anticipated to be entered into before July 16, 2011, are or will be subject to the regulations;• Prepare relevant disclosure documentation related to such services;

• Modify their policies and procedures accordingly; and

• Train & educate staff as to the modifications made to address the new client relationships and disclosures.

Daniel E. LeGaye, Co-Author

Michael Schaps, Co-Author

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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