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Offering Individual Brokerage Account... Is there a Notice?


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I have searched the web and this site but can not find an example of a notice you would give to the participants of a plan informing them that they can establish an individual brokerage account away from the current financial advisor where their funds are being held.  Here is why I am looking for examples.....

A new plan to me... currently the plan has say 15 participants and all the participants have individual accounts at a legacy investment firm.  The owner has a substantial balance ($700K) and his account is being managed by a money manager at a smaller boutique investment firm.  The other participants do not have the minimums to open accounts at this boutique firm so their accounts are managed at the larger legacy investment firm.  Doesn't seem fair to me... why does the owner get to choose a different investment firm while everyone else is stuck at the legacy firm?  As you can guess, the owner doesn't want to give up his boutique firm so he wants to make it available to the other participants the option for them to choose where and who their account is invested. 

Does anyone have a boilerplate form that I can include as an addendum to the SPD as well as include at the end of the participant statement/SAR package given upon completion of the annual administration?

Thanks!

Its not easy being green

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  • K-t-F changed the title to Offering Individual Brokerage Account... Is there a Notice?

First off, if the owner is the only one who has a balance big enough for the outside brokerage account, then you are most likely failing BRF.

However, offering a blank canvas to the other participants is problematic, too.  Is the owner willing to take on the fiduciary liability that would come with monitoring all the possible accounts?  First off, I think that fees could be an issue.  All the accounts must be in the name of the trust.  Is the owner going to set those up, or at least get involved with that?

Is there a way the owner can use his clout to get the boutique firm to lower its entry requirements for his firm's employees?

 

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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Each participant has a segregated brokerage account.  Salary deferrals and the SH contributions are deposited into each participant's account monthly.  The financial advisor appears on their doorstep twice a  year to sit with each participant and discuss their account.  He is also available in between visits as needed. 

Because the owner has personal funds also invested with the boutique advisor I am sure he meets at least semi-annually.

Each account currently is registered to the plan FBO each participant.  The trustees are listed on each account.  Should any participant decide to move to a different investment firm the same setup would be put in place. 

I asked him if maybe the boutique would make an exception considering most of the rank and file accounts are valued anywhere from $50k ~ $150K.  It's not like we are talking insignificant account balances.

I am sure there are plans that are setup this way.... giving the participant's the option to choose where their account is invested.

Its not easy being green

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I have plenty of plans like this.  It is a bit of a different animal from working with platforms but it isn't uncommon.

I don't see any issues with how the accounts are set up (name of the trust, FBO, availability of the adviosor, etc.)  So it appears that the only concern here is that while the rank and file have an FBO account with XYZ brokerage, the owner has an FBO account with ABC brokerage and you want to make sure that all participants are given the opportunity to go outside of XYZ brokerage.

Most of our communication includes a simple section regarding SDBAs such as "please contact John Doe at 867-5309 for more information".  Each plan then has its own procedures that controls the when/what/where/how.

 

 

 

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@RatherBeGolfing... That is correct.  We just want to make sure that we are not forcing anyone to use XYZ since the owner has decided to use his own guy at ABC.  My concern and goal is to present each participant (owner included) a form explaining that unless they have a better choice the default brokerage house will be XYZ and Joe Cool will be the financial advisor.  As is stands now only one of the rank and file employees is considering a move... everyone else is thinks Joe is cool and will continue to use him.

So to summarize your procedure... you just include a simple notice telling the participant that the option is available and if they want to check it out they should request more info.  That is when you spring on them the procedures and more paperwork?

Thanks

Its not easy being green

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13 minutes ago, K-t-F said:

@RatherBeGolfing... That is correct.  We just want to make sure that we are not forcing anyone to use XYZ since the owner has decided to use his own guy at ABC.  My concern and goal is to present each participant (owner included) a form explaining that unless they have a better choice the default brokerage house will be XYZ and Joe Cool will be the financial advisor.  As is stands now only one of the rank and file employees is considering a move... everyone else is thinks Joe is cool and will continue to use him.

So to summarize your procedure... you just include a simple notice telling the participant that the option is available and if they want to check it out they should request more info.  That is when you spring on them the procedures and more paperwork?

Thanks

In a nutshell, yes. Some of my clients will let a participant go where ever they like.  I don't like this policy and caution them about their responsibilities and duties.  It is still their responsibility to make sure that the broker the participant wants to use is appropriate, that the fees are reasonable, etc.

Most of my clients will review a participants request on a case by case basis and it usually isn't an issue because most participants will stay with the default even when they can go elsewhere.

 

 

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Thanks for your opinion and insight.   I will impress upon the trustees that they need to take an interest in who is chosen, vet the potential advisor in an effort to protect the participant from being mishandled financially. 

Its not easy being green

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This still doesn't change the fact the owner has access to an investment house that the staff doesn't.  Could this still be a BRF issue?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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18 minutes ago, BG5150 said:

This still doesn't change the fact the owner has access to an investment house that the staff doesn't.  Could this still be a BRF issue?

I don't think so.  

OPs plan allows for self direction.  It allows for SDBAs (it actually requires it), and it allows for the participants to use a brokerage account other than the default brokerage account.  At this point, the BRF are available on a non-discriminatory basis, because they all have the same opportunity (stay with default or go elsewhere).  The option  to select a brokerage firm other than the default is the feature, not whether Brokerage XYZ will take on Participant A as a client.

What would cause a BRF issue here is if the option itself is restricted.  For example, If staff are only offered the default option and the owner is offered a non default option would be a problem.  Similarly, If there was a minimum balance requirement in order to have the option to use a non default broker, those employees employees with an insufficient balance would be treated as not having the option available.  

 

 

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