Broker - Dealers

[Guest scuba80]

I have a nuts and bolts type of question: Does a 401k plan need a broker dealer? Does the size of the plan matter?

Thanks - Mike

[MoJo]

Well, the simple answer is "no" but the question should best be phrased a little bit differently. First, a BD is needed ONLY to effectuate certain types of securities trades - on an exchange. So, the "trustee" will need to have access, typically, to a platform on which the plan's investments are traded - and a BD is usually involved there (but most often truly behind the scenes, as the recordkeeper usually offers connectivity to handle those functions) - but not necessarily in the sense I think you imply. Perhaps what you are asking is does a plan need an investment" advisor or other "consultant" and the answer is again, "no." BUT, ERISA requires those wwho are fiduciaries with respect to the plan operate as a prudent "EXPERT" would do, and unless those actually performing those functions (selecting the plan's investments, or performing other fiduciary functions) are proficient at the level of a prudent EXPERT, it certainly is advisable to hire that expertise, and many (most?) now use the services of an advisor to assist. The trend is aware from "brokers" (commission or asset based fees) to more "fee only" advisors (flat fee for services).

[Guest scuba80]

Thanks MoJo. The broker dealer on our plan is also the advisor. I need to dig a little deeper as I am pretty sure our broker dealer is not invovled with plan trades. At one time the broker dealer took in enrollment forms and processed them, but we have sinced moved to having particpants enroll directly on the recordkeeper's website. We no longer require paper forms to be submitted.

[Lou S.]

Be aware that many packaged products (though not all) require a licesed broker, insurance agent or registered investment advisor to sell the product that you may be using.

In theory that person is being paid to advise the Trustees on investment option selection and quite probably other things as well.

Most invetsment advisors are required to work for a broker dealer in some capacity. The broker dealer oversees the advisor. Some of this deals with SEC regulations on investment products.

[Bill Presson]

Thanks MoJo. The broker dealer on our plan is also the advisor. I need to dig a little deeper as I am pretty sure our broker dealer is not invovled with plan trades. At one time the broker dealer took in enrollment forms and processed them, but we have sinced moved to having particpants enroll directly on the recordkeeper's website. We no longer require paper forms to be submitted.

I think you may be using the term "broker dealer" to just mean "broker".

For example John Doe would be a broker, but his firm Merrill Lynch (for example) would be the broker dealer. Some smaller brokerage firms may clear through large broker dealer firms (like LPL Securities) that exist just to provide the back office support that they need.