financial advisor buys their client... and is still getting paid

[AlbanyConsultant]

We started a new plan for Company R in 2025, and we just found out that the plan's financial advisor (through a shell company he owns 100% of) purchased 10% of Company R's stock sometime in 2025.  The plan is on a recordkeeping platform that pays the advisory form some amount of bp (50, I think).

This seems to be a prohibited transaction; I don't see any way for the FA to keep getting paid on this.  And he should return all the fees paid to him since the purchase (with earnings) to restore the plan.

Anything else I'm missing?  Thanks.

[Peter Gulia]

Might everyone with a tie to R, A, or A’s broker-dealer or investment-adviser firm have recused and an experienced fiduciary independent of R, A, and the platform have decided, with no influence from anyone, to continue A’s services and approve the compensation arrangement?

See 29 C.F.R. § 2550.408b-2(e)(2) https://www.ecfr.gov/current/title-29/part-2550/section-2550.408b-2#p-2550.408b-2(e)(2).

Had the independent fiduciary confirmed that A’s broker-dealer or investment-adviser firm received full and fair disclosure of all of A’s outside business activities, including A’s indirect stake in R and that R’s retirement plan is a customer or client? Had the independent fiduciary confirmed that A’s broker-dealer or investment-adviser firm approved all dealings?

Had the independent fiduciary confirmed that the platform received full and fair disclosure of A’s indirect stake in R, recognizing that R’s retirement plan is the platform’s service recipient and a source of A’s indirect compensation? Had the independent fiduciary confirmed that the platform approved all dealings?

Have the plan’s administrator, its third-party administrator or other Form 5500 preparer, and the administrator’s independent qualified public accountant resolved how the Form 5500 report and the plan’s financial statements will report the transactions, including, even if exempt, related-party transactions?

Does every fiduciary, including those who recused, have an absence of knowledge that the independent fiduciary breached its responsibility?

This is not advice to anyone.