SAN ANTONIO, Texas – Bruce Ashton thinks he has a pretty good idea why any retirement plan advisors might have failed to show up Wednesday for his presentation on the Department of Labor’s investigations of RIAs and broker-dealers.
“They’ve either already gone through an investigation or they’re in la-la land,” Ashton said.
It was meant as a joke, of course, but the comment didn’t evoke much laughter, a reflection no doubt of the growing concern among advisors, brokers and plan sponsors that the DOL has, as Ashton put it, “careened out of control, in some respects.”
Whether it has or not, the DOL has unquestionably become more aggressive in its pursuit of potential offenders. The agency conducted more than 3,600 audits of qualified retirement plans last year. Settlements related to violations totaled $1.7 billion in plan reimbursements and fines.
Ashton, speaking at the Center for Due Diligence conference here, went beyond merely expressing concern about potentially overzealous government investigators. He was disdainful of the DOL’s approach in a number of his observations. Among them:
The DOL has no qualms asking for information where it has no jurisdiction.
The DOL will contact an advisor’s clients. “They don’t seem to care how much disruption the process causes the firm under investigation,” he said.
The DOL doesn’t have any sense whether its probe will go anywhere or not.
DOL investigators don’t seem to be very well trained, in some respects.
Ashton shared some of the details of a client’s experience to underscore his points. This particular client, he said, is a dual-registered broker-dealer and RIA who provides wealth management, investment advice to retirement plans and is an advisor to a mutual fund.
Also read: 12 best ways to avoid a DOL audit
In its probe, the DOL has asked the client for a number of items that Ashton expected would be sought, including a list of plan accounts, copies of its contracts and 408(b)(2) disclosure forms.
Less expected, if not surprising, was the DOL’s request to see a list of all of the advisor’s wealth clients and all of the mutual fund investors. The DOL also asked to review the advisor’s general ledger. And it also contacted the advisor’s clients asking for information, sharing with them that its request was being made in connection with an investigation of the firm.
“Fortunately,” Ashton said, “we had crafted something to alert clients. Yet some of them were naturally spooked after being contacted by the DOL.”
Joan Neri, another Drinker Biddle attorney, said the DOL seems especially keen on rooting out advisors who commit prohibited transactions, whether deliberately or not.
Improper or incomplete disclosures get advisors into trouble, she said, including failing to acknowledge that they are, in fact, acting as a fiduciary when rendering investment advice to a plan’s investment committee.
What has the DOL most concerned, she said, are advisors who use their positions to generate additional fees for themselves or their affiliates.
Ashton warned that the DOL’s deadline may be short and that much of the information it requests may not be readily available.
That’s why, he said, it’s important to try to negotiate with the agency on some of its demands.
“Don’t just get their letter and start scurrying around for everything they want,” he said.
In some cases, advisors might go so far as to ask the DOL to issue a subpoena for what it wants. Doing so allows advisors to explain to angry clients that they were compelled by law to provide the DOL with the information.