Plan for a FA's company... PTE if the owner is the advisor?

[AlbanyConsultant]

Putting in my first plan for a financial advisory firm, and the owner (which is a registered financal advisor) wants to be the trustee and have self-directed brokerage accounts for each of the participants (at least one NHCE). He is OK with giving advice to his participants since that is literally his specialty.

All the bells for self-dealing and the sponsor giving participants advice started going off, but there has to be a way this is OK. It doesn't seem reasonable for this employer to have to call a competitor to have them be the advisor on this plan. But the PTEs don't seem to be specific to this situation. Any thoughts? Thanks.

[Bill Presson]

There needs to be a way for the owner to waive compensation. Sometimes, that can be done if it's set up as a "house account."

[Peter Gulia]

Bill Presson's suggestion about avoiding compensation (and selecting investments not priced to provide compensation) can help.

Beyond concerns about ERISA and the Internal Revenue Code, an investment adviser should get its lawyer's advice about how serving in a fiduciary role regarding a retirement plan, even a plan for the adviser's employees and even without compensation, can affect investment-adviser compliance.

Just to pick one example, providing investment advice (even without compensation) to a participant arguably might result in "custody" (as defined under investment-adviser law), which would require a Form ADV disclosure, and result in a higher risk profile with securities regulators.

See Question XII.1 https://www.sec.gov/divisions/investment/custody_faq_030510.htm

(I'm not saying this Q&A is a correct interpretation of the law; rather, I suggest only that it illustrates some of the difficult issues involved, and securities' regulators' incomplete knowledge, concerning an investment adviser's role regarding a retirement plan for the adviser's employees.)

There are ways to work with the arrangements to avoid this and other problems.