Products August 22, 2017

A Closer Look at the BICE

A new report, “Everything You Wanted to Know About BICE But Were Afraid to Ask,” offers plan officials key insights on the requirements of the fiduciary rule and the best-interest contract exemption.
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As the Department of Labor’s (DOL) fiduciary rule goes through its phased implementation, some financial institutions and advisers will take on new requirements regarding the delivery of investment advice to retirement plan participants and other stakeholders. Some may choose to stop offering investment advice all together.

Built into the rule, however, is the Best-Interest Contract Exemption (BICE). This part of the expanding fiduciary regulations aims to protect plan participants from receiving costly or conflicting investment advice, while allowing service providers and advisers to keep offering retirement plan investment advice under existing compensation structures, as long as they meet certain fairness standards under the Employee Retirement Income Security Act (ERISA). BICE rules are very important for plan sponsors and advisers to consider when interacting with various vendors. 

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An article titled “Everything You Wanted to Know About BICE But Were Afraid to Ask,” was recently published by Benefits Quarterly, a publication of the International Society of Certified Employee Benefit Specialists.

Attorneys from Jackson Lewis, who authored the report, suggest plan sponsors begin by asking their retirement plan investment advisers to confirm their status as fiduciaries and to provide proper documentation. The report also offers some insight into what is expected of a fiduciary working under the BICE. According to the report, a financial institution must “adhere to impartial standards of fiduciary conduct which include providing advice that is in the best interests of the investor and his or her financial objectives without regard to the financial interests of the adviser.” The fiduciary must also “implement policies and procedures designed to prevent violations of fiduciary standards, and adequately disclose fees, compensation and material conflicts of interest with respect to investment recommendations.” 

In an important sense, the ultimate execution of these requirements remains the responsibility of plan sponsors, which is why the researchers emphasize that plan sponsors now “need to be more aware of who is being paid and how.” Sponsors have to determine whether all fees for providing financial advice are reasonable.

Plan fiduciaries also have to be on the lookout for potential conflicts of interest. According to the report, a “conflict of interest exists (for purpose of BICE) when an adviser has a financial interest that a reasonable person would conclude could affect the exercise of its best judgement as a fiduciary in rendering advice to a retirement investor.” These conflicts of interest need to be disclosed and proper safeguards must be put in place to protect the participant if the adviser intends to use the BICE protection. A person must be identified by name or function who is responsible for addressing conflicts and monitoring adherence to standards of impartial conduct. Those who “avail themselves of the strictures of BICE” will be allowed to accept varying compensation from third-parties including commissions, 12b-1 fees and revenue-sharing payments.

It’s important to note that BICE is one of several exceptions built into a larger regulatory package, all of which are scheduled to complete their phased implementation period in 2018, although additional delays are possible. 

“Everything You Wanted to Know About BICE But Were Afraid to Ask” can be found at ifebp.org.

Deals & People August 22, 2017

Firms Carrying CAPTRUST Brand Reunite After 20 Years

Two decades ago the firms that were part of the same North Carolina holding company parted ways; now industry pressures and opportunities of scale have brought them together again. 
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The advisory firms CAPTRUST and CapTrust have announced a merger after nearly 20 years of separate operations.

Longtime readers of PLANADVISER may recall the 1998 split: One portion of the original firm became “CAPTRUST” and began a new life as a Raleigh, North Carolina-based registered investment adviser (RIA), while the other parts of the business became “CapTrust Advisors,” and “planted a flag in Tampa, Florida.” The former group has specialized in wealth management as well as institutional asset management, growing to manage some $250 million in client assets. The “CapTrust” side has specialized in endowments and foundations and built a significant wealth management and 401(k) business, growing to $19 billion in assets under advisement. 

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Jeb Graham, retirement plan consultant partner with CapTrust Advisors since 2005, was recognized as the 2013 PLANSPONSOR Retirement Plan Adviser of the Year. Graham says the mission statement of his organization in this merger remains to deliver “exceptional services in a user-friendly manner.”

Technically speaking the CapTrust firm is joining the CAPTRUST advisory network, which has grown substantially through mergers and acquisitions in recent years. Speaking about the merger into CAPTRUST, Graham tells PLANADVISER his group is eager to access expanded participant advice solutions and to take advantage of the “phenomenal depth, scale and leadership” of the larger organization. Graham further voiced confidence in the forward-looking growth vision of CAPTRUST, which includes both merger/acquisition activity and a focus on organic growth in new markets: “The organization is built as a solid, lasting business that will allow us to continue directly serving our clients.”

Reached for a separate interview, CAPTRUST’s Fielding Miller, CEO and co-founder, and Rick Shoff, adviser group managing director, echoed Graham’s optimism about the opportunity for synergy. They suggested the CapTrust acquisition fits the pattern of the 26 acquisitions the firm has conducted in the last decade.

“CAPTRUST has to compete against a lot of other buyers of advisory practices in todays’ market,” Miller observed. “Part of what helps us stand out is that we are entirely employee-owned and we have no outside capital invested in the business.” Oftentimes, the pair observed, this fact has served as an important differentiator in the eyes of potential independent advisory firm prospects, which can be somewhat wary of merging into venture capital ownership.

Another factor that has buoyed CAPTRUST’s acquisition efforts is the 18% annualized growth rate of firms that have been acquired in the last decade. As Shoff explained, generally speaking a firm joining the CAPTRUST network can expect to double its gross organic growth capacity, “and no small part of this is the fact that we target firms that have a compatible match with our culture and our beliefs about where the retirement plan and investment business is heading.”

It also helps, the fact that the Department of Labor (DOL) fiduciary rule is pressuring advisers to ramp up their already-significant compliance efforts, which can understandably be harder for smaller firms with less resources to spare. All in all it remains an appealing time for practices to think about how to boost scale. 

“The acquisitions get a lot of press and attention in the trade media,” Miller concluded, “but we continue to believe that it is the ability of the business to grow organically that is the true measure of where we stand. The real work is done when we are growing one client at a time, while keeping the existing clients happy. That has to remain our primary strategy, and the acquisitions we do in the future must be an accelerant for the organic growth.”  

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