Ethical "Practices"

There are common threads in what is understood to be ethical behavior, but for retirement plan advisers having good business practices is also ethical.

This includes doing the right things for plan sponsors and participants, being transparent, avoiding conflicts-of-interest and not placing personal gain above what is good for clients, according to Sheldon H. Smith, Esq., an attorney from Brian Cave LLP in Denver, Colorado, and a speaker at the National Tax-Sheltered Accounts Association (NTSAA) 2013 403(b) Summit. Obtaining degrees, certifications and continuing education, and specialized knowledge also help advisers do their best for clients, he contended.    

Smith pointed out that advisers have a duty to act in the best interests of their retirement plan sponsor clients, but under the Employee Retirement Income Security Act (ERISA) they owe the highest duty to retirement plan participants. The four basic fiduciary duties of ERISA are the duty of loyalty, to act prudently, to provide diversified investments and to follow the terms of the plan document.    

Advisers can look at their business practices to see if they are doing their best ethically. For one thing, Smith noted, transparency/disclosure is the best way to avoid even the appearance of a conflict-in-interest.

Smith said adivsers should ask, “Am I a salesman or a financial planner?” He contended the most ethical choice is a financial planner. And, advisers can add value by presenting themselves in an ethical light. “Compare yourself in a way that shows you will follow plan and ERISA rules,” he said.   

To be ethical, do not “run away” after a sale—assist plan sponsors and participants, answer questions and follow up to ensure the plan stays compliant with all regulations, Smith added.   

Other best practices for an ethical business, according to Smith, include: 

  • Provide a valuable benefit at an appropriate cost; 
  • Provide appropriate products to clients and participants; 
  • Communicate clearly your engagement with clients; 
  • Advise clients of all relevant information to make an educated decision; and 
  • Put material information in writing. 

The bottom line is to act fairly and with integrity, Smith said. “You’ll know you’ve done a good job if plan success is improved,” he concluded.