Self-directed investment option (wide open)

[PJ2009]

A physician client wishes to make use of the self-directed brokerage account feature, which provides that the participant must use a broker dealer and invest in publicly-traded securities only. He has specifcally asked for the removal of such restrictions. However, we are concerned that the risk he is taking on is enormous. My questions are:

1. What exactly is a prudent investment under ERISA?

2. How could an individual invest in securities or even commodities without using a broker dealer?

3. What other risks does this request entail?

[Jim Chad]

I believe the Corbel Prototype and Volume Submitter documents are both more flexible than this. I believe they have no restrictions on investments. Which would mean a doctor could get into a lot of trouble.

I have one client in a single person Plan that invested in real estate. So far, this has not been too bad.

Of course the law says you may not invest in coins, art or antiques.

[mbozek]

A physician client wishes to make use of the self-directed brokerage account feature, which provides that the participant must use a broker dealer and invest in publicly-traded securities only. He has specifcally asked for the removal of such restrictions. However, we are concerned that the risk he is taking on is enormous. My questions are:

1. What exactly is a prudent investment under ERISA?

2. How could an individual invest in securities or even commodities without using a broker dealer?

3. What other risks does this request entail?

How can he trade any commodity or security without using a licensed representative for the trade? All commodities must be sold by a licensed trader.

As far as risk, under dol rules if he self directs the account he is not a fiduciary and neither is the plan fiduciary. See examples 5 and 9 in reg 1.404c-1(f) especially 9 where the participant hires his own investment manager to manage his plan investments.

Why not have the plan require that the doctor hire his own investment manager to preclude any fiduciary liability on the part of the plan fiduciary under example 9?