Podcast Episode #7: Spotlight on Estate Planning with Christina Lynn
Episode Summary Every good advisor wants to ensure a client’s legacy is protected, but many struggle with reviewing estate plans… Read More
Insights and best practices for successful financial planning engagement
• Guest Contributor • June 20, 2016
Before the end of 2016 we expect to see a final version of the new “fiduciary” definition. This new definition adds new liability and responsibilities that previously did not exist to many financial advisors. While those advisors that have avoided a “fiduciary” title will adapt to the new normal, one item that may catch them off guard is the SEC changes that impact Money Market Funds (MMF).
The changes to MMF go into effect this October and will now require shorter durations, stricter risk-limiting conditions (which are expected to impact yields), mandated floating instead of a stable $1.00 NAV, permissive or mandatory liquidity fees of up to 2%, and redemption gates that can be imposed if weekly liquid assets drop below a specified percentage. Additional limitations will apply to the gates which can restrict redemptions for a 10-day period within any 90-day period. Such limitations will surely impact durations which in turn will result in lower yields.
With approximately $150 billion in MMF assets held by defined contribution plans according the 19th Annual Stable Value Investment & Policy Survey conducted by the SVIA released in 2014, it is expected this issue will impact many retirement plans and consequently many advisors that are not familiar with fiduciary responsibilities.
Plan sponsors that hold a MMF in their retirement plan will need education on the new rules and the fiduciaries will need to make important decisions regarding the retention of the existing MMF option or the decision to move those cash equivalent assets to another alternative money market or possibly a stable value fund.
Advisors that become fiduciaries under the new rules will have to address this issue by providing the appropriate documentation and research in order to assist the plan sponsor with making an informed and prudent decision.
Issues that advisors will need to be prepared to address include:
Advisors unfamiliar with ERISA’s fiduciary standard of care, but which have become a fiduciary as a result of the new definition proposed by the DOL, will likely have to deal with issues like this in the future. Documentation to support an informed decision and to reduce plan sponsor and advisor liability will be paramount for advisors that have become a fiduciary.
Bottom line, once the new definition is finalized, a fiduciary advisor will become a co-suspect for any fiduciary breach related to the investments. This will require advisors to stay current on investment related issues like the changes applicable to Money Market Funds as well as be prepared to assist the plan sponsor with making a prudent decision.
If you would like an introduction to the retirement advisor groups that have built the operational backroom to support issues like this contact me at dwitz@fraplantools.com.
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