Compliance June 25, 2024

Preparing for the Retirement Security Rule

Some provisions are set to come into effect in September.

Reported by

Employee training and supervision, as well as internal policies and procedures, will be essential for complying with the Department of Labor’s Retirement Security Rule, parts of which come into effect in September, according to industry experts speaking Tuesday on a webinar.

The Retirement Security Rule, finalized in April, “increases the activities that will be considered fiduciary activities,” says William Nelson, an associate general counsel at the Investment Adviser Association, speaking at a webinar hosted by InvestorCOM. 

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The rule covers recommendations where an adviser presents themselves to a retirement investor as offering them individualized advice that can be relied on to advance their best interests, even if this recommendation is done on a one-time basis.

Nelson said that the DOL was concerned about “marketing, sales pitches,” and wanted to be sure those presentations “matched investor perceptions.”

Employee Training

The new rule also amends PTE 2020-02, which describes the requirements advisers must follow in order to be compensated for fiduciary advice to a plan. Nelson said that “training is going to be a huge part of it,” to be sure that advisory professionals continue to comply with the rule going forward.

The PTE, in its own words, requires advisers to manage their conflicts with policies that “mitigate Conflicts of Interest to the extent that a reasonable person reviewing the policies and procedures and incentive practices as a whole would conclude that they do not create an incentive for a Financial Institution or Investment Professional to place their interests, or those of any Affiliate or Related Entity, ahead of the interests of the Retirement Investor.”

Ed Wegener, managing director and head of governance, risk and compliance with Oyster Consulting, warned advisers not to take advantage of the distinction between education and recommendation outlined in the rule. He emphasized that employee training should really make this clear “so they don’t inadvertently cross the line.” He said that he suspects DOL will be “keeping a look out for that.”

Another change in the PTE is that an adviser can lose access to the exemption if a foreign affiliate is convicted of a crime. Nelson explained that advisers “will really want to look at their affiliates,” to mitigate this risk because “you may not be allowed to rely on the PTE 2020-02 anymore.”

Unsolicited Rollovers

Nelson said that many members ask about “unsolicited rollovers,” or a rollover where the adviser is approached by a client and does not make specific recommendations to them. He said that “if you’re going to do it, get that documentation,” that the client initiated through the rollover.

Though the rule requires an actual recommendation to be made, the new PTE 2020-02 says that recommending a destination for a rollover would count, and it can be difficult in practice to execute a rollover without also recommending a destination at some point, though conceivably a client could recommend that too, says Jason Roberts, founder and CEO of the Pension Resource Institute, in commentary separate from who did not speak on the webinar.

Parts, though not all of the Retirement Security Rule will go into effect on September 23.

 

Client Service June 25, 2024

Many Participants With Company Stock Puzzle Over Use

There is need for more education in areas including retirement planning from equity compensation plans, according to Morgan Stanley at Work research.

Reported by

More employers are offering company stock or other forms of equity to workers. The only problem is that more than half aren’t sure how to maximize it for retirement savings, according to a report from Morgan Stanley’s workplace benefits and division.

As companies seek to offer enticing benefit solutions, 76% are providing some form of equity compensation benefits—a 12% jump since 2021, according to research released Monday by Morgan Stanley at Work. Fresh off its workplace benefits event, called Thrive, the firm noted that, despite the rise in equity benefits, many participants aren’t sure of how best to use them.

Among 2.3 million global stock plan participants, 61% said they don’t understand how to maximize the benefit, according to Morgan Stanley. Another 69% said they would likely attend sessions on the topic of equity fundamentals, 67% said they’d be interested to hear about retirement use and 64% would want advanced investing strategies.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

There are, however, signs of hope to address this, according to Scott Whatley, head of Morgan Stanley at Work. Surveying also found that 67% of participants would be “likely to attend a session on how to maximize their stock plan benefits for retirement.”

“There is a need for employers to help their employees translate their financial benefits into the real-world context of their individual financial goals, often while juggling competing priorities,” Whatley says. “While there is strong demand for workplace benefits such as equity compensation, there are often knowledge gaps that employers and providers can help address, such as how to utilize this benefit for long-term saving goals or retirement.

Further, he notes, employees ranked access to a financial adviser at the top of their list for most-wanted benefits.

“Given financial advice is often based on a holistic view of their client’s finances, financial advisers can be a great resource to provide guidance on if/how clients should connect their equity compensation benefits to long-term goals,” he says.

Morgan Stanley at Work has recently been working to connect with employees on various aspects of financial planning through the workplace, including to its national network for advisers. The division currently has over 24,000 corporate clients representing about 12 million participants. Its recent Thrive event held in Phoenix, where some of these findings were discussed, had more than 1,000 benefit professionals in areas including health, energy and finance.

Employers may be well-served to improve communication and education by tying equity compensation to other workplace benefits, according to the study. Morgan Stanley found in the survey that 56% of U.S. stock plan participants “said their equity benefits are one reason they have stayed at their company.”

At the moment, 45% of stock plan participants know how to reach someone if they have questions, and 31% said they have a personal financial plan in place, according to the researchers.

“Equity compensation can be complex, and even sophisticated executives may need support from professionals who are knowledgeable in specific areas—whether it’s taxes, 10b5-1 planning, portfolio reallocation, navigating regulations or making sense of unique company plan details,” Whatley says.

He recommends that employers consider a combination of communication methods to reach participants including digital and in-person support, self-guided education, “clear plan communication” and a “smooth” platform user experience.

“The key for companies is balancing the need for scalable benefits solutions with personalization so employees can find the right application in their individual situations,” he says.

Morgan Stanley at Work’s 2023 Annual Stock Plan Participant Survey comes from an in-house survey of 2.3 million active global Morgan Stanley stock plan participants (1.3 million in the U.S. and 980,000 non-U.S. participants) conducted on September 14, 2023, plus one reminder email.

«