Sarasota Florida – Paradise or the new technology hotspot?

Last night I was honored to be one of the 300+ guests for the inaugural Sarasota Tech Summit.

As the owner of a startup fintech company in Sarasota, I was highly intrigued. 

Sarasota is on the “suncoast” of western Florida.  We are an hour south of Tampa and have some of the most beautiful beaches with white powdery sand that does not get hot! 

Siesta Key beach is constantly on Top 10 lists of the country’s greatest beaches. 

However, most of us “locals” don’t hang out at Siesta Key as it is very touristy. 

I put “local” in quotes as almost everyone I have met here (in the past eleven years) is from somewhere else. 

I am from Chicago.  I have met many people from Chicago and the Midwest.  Many of my friends are from Ohio (and extremely annoying about THE Ohio State Buckeyes).  I have met many from Boston and New York and all over the world. 

The one thing we have in common, we all moved to Sarasota to live and work from paradise.

And the fact that there are not many “locals” here was one of the themes from last night.

Since we live and work in paradise, many people are continuously drawn to our town.  In fact, Covid was really good for Sarasota (and most of Florida) as working remote became en vogue. 

Sarasota was able to attract many highly skilled tech workers who could (literally) Zoom themselves into work everyday.  And, Sarasota has been a retirement destination for many who exit companies and want to live a laid-back Florida lifestyle.

So, imagine my surprise when one of the themes last night was making Sarasota a “tech hub” on the Suncoast. 

St Pete and Tampa are an hour north and Miami is three hours south. 

They are already tech hubs. 

Sarasota is known for vacations and retirement.  For arts and excellent sea food.

But last night the starting pistol went off.

Sarasota had a group of 300+ individuals that want to see it become the next big thing in tech destinations!

The numbers are actually much larger than that, but only 300 people were allowed to get tickets to the event.

Assuming there will be another event next year, I predict it will be twice the size.

I predict that there are many wanting Sarasota to become a “tech” town as discussed last night.

And I am one of those people. 

I am proud to be part of the inaugural Sarasota Tech Summit.

I am proud to be part of a growing community of tech individuals who get the privilege of working in paradise.

And I am proud of @Raymmar Tirado, @Toli Marchuk, @Pete Peterson (all of whom I knew when we all had offices at the Hub which was one of the coolest co-working spaces ever known) and @Vladimir Ljesevic who I just recently met last month.

You four will be credited for organizing a movement here in paradise!

You four will be credited with firing the “starting pistol” on putting Sarasota on the map for all of us who make a living in the technology industry!

I left the event proud to be a small part of this growing community in Sarasota.

I will do my best to help put Sarasota on the map as the next tech hub in Florida as I build and scale my fintech and (hopefully) have such a large exit that everyone in fintech will know where Sarasota is!

Why you should do your Annual Retrospective Review now!

Happy new year!

I hope that 2025 is the best year you and your family ever experience.

As an ERISA Nerd, I am encouraging all my clients and investment adviser friends not to wait until the end of June to do your required Annual Retrospective Review. 

And there is a specific reason why.

As you know (or should know), you need to complete a “Rollover” form that is compliant with Prohibited Transaction Exemption 2020-02 (PTE 2020-02) when you are an ERISA Fiduciary and you recommend a rollover to an IRA where you will earn more compensation than you are currently earning.

In general, you are an ERISA Fiduciary if you trade your clients 401(k) with discretion or if you charge your client for advice on how they should manage their 401(k).

For a more detailed explanation on “when” you are an ERISA Fiduciary and when you are not, check out our previous blog titled, “Am I an ERISA Fiduciary”. 

Here’s an example of when you are an ERISA Fiduciary:

Assume you’re charging your client 75 bps per year to trade their 401(k) account every quarter.  Your client switches jobs and asks you what to do with their money in their 401(k). You recommend they move their money into an IRA with your firm so you can manage their money for 1% per year.

In the above scenario, it would be “illegal” for you to accept that rollover and earn any compensation due to the “self-dealing” rules under ERISA law.

Now, the Department of Labor (DOL) knows that “in real life” (or IRL – like the kids say) your clients want to continue to work with you, even though moving that money is prohibited under the law.

So, the DOL has created a “legal” way for you to move the money into an IRA and get paid the additional compensation. 

They call it a Prohibited Transaction Exemption or “PTE” for short.

So, as long as you follow the DOL’s exemptions to the “T”, you will be able to get paid for your “illegal” activity.

The last time the “Rollover” exemption was updated was in the year 2020 under the Trump administration.  The DOL created PTE 2020-02 and spelled out exactly what is necessary for you to be “exempted” from the Self-Dealing Rules of ERISA law.

As part of the PTE 2020-02 rule your firm needs to have in writing (not should have, but needs to have) the following:

·        Policies and Procedures designed to ensure compliance with the Impartial Conduct Standards of ERISA

o   Duty of Prudence

o   Duty of Loyalty

o   Charge reasonable compensation

o   Comply with “Best Execution” laws

o   Make no misleading statements

·        Acknowledge to your client you are operating as an ERISA Fiduciary under Title I of ERISA

·        Conduct a prudent analysis and document

o   Alternatives to the rollover

o   A review of all investment options within the plan

o   A comparison of the fees, expenses and services between the plan and recommended IRA

o   Determine if the employer pays for any expenses or services

·        Describe the services you will be providing

·        Mitigate any conflicts of interest

·        Disclose to your client any conflicts of interest that cannot be mitigated

·        Document the reason(s) the rollover to an IRA is in the best interests of the client

All of this MUST be completed prior to completing the rollover to the IRA. 

SIDENOTE: PTE 2020-02 is also needed when you recommend a client move an IRA to another IRA or if you change an IRA account from commission based to fee based (or vice versa). It’s not just needed when moving an ERISA account to an IRA.  

If you work for a large RIA, wirehouse , broker/dealer or insurance company, your company should have provided you the required forms needed and training on how to complete the form and properly provide the required fiduciary acknowledgment and disclosures to your client.

Your firm should have policies and procedures in place in “approving” all your rollover, IRA to IRA business, etc.  They should have made sure you followed all their requirements before the rollover was completed and your work should be done.

However, if any of your documentation is incomplete or if you have Chief Compliance Officer (CCO) duties for your firm, your work is not done yet.

You need to complete a particularly important step before June 30th.

You need to complete an Annual Retrospective Review of your policies, procedures and forms that were completed. You do not need to review every rollover from the previous year.  You can review a sample of them, if the sample size is large enough to determine all the advisers in your firm have complied with your policies and you determine your policies comply with the requirements of PTE 2020-02.

You MUST (there’s that word again) create a file with the samples of all forms that were pulled, write down how you conducted the review and the results of your review.  All the above needs to be condensed down into a written report that is presented to one of the most senior officers of your financial firm.

The senior officer must “certify” they reviewed the report and agreed with the findings, thus putting “their butt on the line” if it’s not done properly.

The report, the written certification and all the supporting documentation must be kept for a minimum of six years.  At any point in time, the DOL could request all that information from any firm to ensure they are complying with PTE 2020-02. 

You have 10 days to provide the DOL with the written report, certification and supporting documentation.  If you do not provide this information to the DOL within 10 days, at worst, they can prevent you (or your entire organization) from doing any rollovers for the next 10 years!

So, it is especially important that every financial firm does their Annual Retrospective Review before June 30th each year.

But here is why it may be a great idea to do the review now.

If you find any violations of your policies during your review, the DOL allows you to correct them within 90 days.

And here is the kicker:

“If the violation did not result in investment losses to the retirement investor or the financial institution made the retirement investor whole for any resulting losses, the financial institution can correct the violation and notify the Department within 30 days of correction.”

If you find any violations, you need to ensure that your client either did not have any investment losses or you need to payback any investment losses before you report the violation to the DOL and add it to your Annual Retrospective Review.

You would much rather find any violation now, when the stock market is still high, versus later in the year, just in case the markets turn south. 

You want to find any violations now before your clients may lose any money in the markets.  Or you and your firm may have to pay your client back the losses.

And the DOL is on record that there are no “small” violations of their rules. 

You need to comply with the whole PTE 2020-02 rule, or you are will be in violation of the “self-dealing” rules of ERISA. 

So, just in case you need to correct any violations of your PTE reliance, you will want to do it before there might be any losses in your clients’ accounts.

Waiting to do your required Annual Retrospective Review until June could end up being very costly for some. 

But hopefully not for any of my fellow ERISA Nerds!

Stay confident my friends!

SHAMELESS PLUG: If you need a refresher on PTE 2020-02 and sample forms, ADV language, Annual Retrospective Review verbiage, etc, check out our course for Chief Compliance Officers by CLICKING HERE.

This update has been written by Kevin T Clark, RF™.

 Kevin is an “ERISA Nerd” and one of only a hundred(ish) Dalbar certified Registered Fiduciaries (RF™) in the United States. 

 Kevin T Clark, RF™ is the CEO and Co-founder of PlanConfidence Corporation. 

All opinions expressed are those of the author and not that of PlanConfidence Corporation nor any other firm or individual.

 PlanConfidence Corporation has created proprietary software to scale the research, advice, documentation and delivery of advice for RIA firms to their “held away” 401(k) accounts.

 PlanConfidence ensures ERISA compliance through their proprietary software.

 PlanConfidence Corporation is also an SEC registered “internet only” investment firm ensuring compliance with REG BI through their proprietary software.

#401kAdvice #403bAdvice #TSPadvice #BeConfident #got401k

IAR CE Needs to be completed by 12/24/24.

A few months ago I wrapped a year long project of pouring my heart and soul into building course for investment advisers.

I wish I had this course when I was an adviser. It (literally) details everything you need to know as an adviser when you are working with “held away” 401(k) accounts. Many advisers don’t know that 9 times out of 10, they are an ERISA Fiduciary when working with their clients 401(k) accounts (advising or trading).

As an ERISA Fiduciary, there are very specific things an adviser NEEDS to do. They are not optional and if not done, the adviser could end up paying back any client losses with their own personal assets (there is no “corporate protection” when working with ERISA accounts).

I was very honored when we got the course approved 6.5 hours of CFP credit and 6 hours of IAR “Ethics”. There are currently 18 states that require investment advisers to earn 12 hours of CE credits every year. An IAR MUST complete 6 hours of “Products and Practice” and 6 hours of “Ethics and Professional Responsibility”.

It’s pretty easy to pick up hours for “products” as any wholesaler can easily provide those (oftentimes with a “free” steak dinner)!

However, it’s harder to find “ethics” CE. So, I was very pleased when our course was approved for all six hours.

If you are in any of the states below, please know you need to abide by these requirements.

• Arkansas (effective in 2023)

• California (effective in 2024)

• Colorado (effective in 2024)

• Florida (effective in 2024)

• Hawaii (effective in 2024)

• Kentucky (effective in 2023)

• Maryland (effective in 2022)

• Michigan (effective in 2023)

• Mississippi (effective in 2022)

• Nevada (effective in 2024)

• North Dakota (effective in 2024)

• Oklahoma (effective in 2023)

• Oregon (effective in 2023)

• South Carolina (effective in 2023)

• Tennessee (effective in 2024)

• Vermont (effective in 2022)

• Washington, D.C. (effective in 2023)

• Wisconsin (effective in 2023)

As an “official” CE Provider of “Ethics” we have been notified by FINRA that all IAR CE needs to be reported to them by 12/26/2024 at 6pm EST.

If you still need to complete 6 hours of “ethics” CE, please checkout our course.

We have created the first ever course for IARs that work with “held away” 401(k) accounts.

The course has been approved for the 6 required hours of “ethics” CE and 6.5 hours of CFP credits (if applicable).

You can complete your ethics requirement for the low cost of a onetime investment of $99.

(Use code “IAR100” at checkout for $100 off).

We also have a course available for CCOs that comes complete with sample ADV language, compliance manual language, annual review, etc for just $399.

Sharpen your knowledge of being an ERISA Fiduciary for “held away” accounts and earn CE (we do all the reporting to FINRA and the CFP Board).

You just need to complete the course and final exam (70% or higher) before 12/24/24.

This will give us a 2 day “buffer” for FINRA to process the CE so it is credited for 2024.

Click the button below to learn more.

And be sure to use the Coupon Code of “IAR100” to take $100 off any package!

2024 the Year of CEO turnover – what should we expect in 2025?

According to a 9/21/24 NewsNation article, CEO turnover is up over 50% from the previous year.

It’s not just in our industry.  But major companies like Starbucks, Nike, and Boeing to name just a few.

And it seems that every week there is another CEO stepping down (or being forced out) in the financial industry.

Is there an underlining “cause” for the increase in 2024?

Are the sun, moon and stars aligned (or misaligned if you are the CEO getting replaced)?

With the exception of a few news making departures, it appears that many of these departures are voluntary.

So, that got me thinking.

What is the financial industry going to look like in 2025? 

There will be a new crop of leaders who are eager to make their mark. 

But will they be willing to take risks and increase their company’s market share? 

Are they being brought in to “right size” the company after years of growth? 

Only time will tell.

But my hope is, the new leaders taking over in the financial industry will be those that want to help as many hard-working Americans as possible.

I hope they will be willing to embrace new business models in working with younger clients who don’t fit into the “old” AUM / commission model of financial services.

I hope that many of these new leaders will understand there are more generations who are willing to pay for financial advice and services other than the baby boom.

In fact, they will have to.

According to Neuberger Berman, 66% - 95% of children will fire their parent’s financial advisor after receiving their inheritance. 

However, a  study from Nuveen states that an advisor can have an 80% chance of retaining the child as a client if the financial advisor meets the child(ren) at a very young age.

This means that financial firms have tremendous risk of going out of business during the “great wealth transfer” or have a tremendous opportunity due to the “great wealth transfer”!

The firms that will fail are the ones that are doing business the same way they did ten years ago, with a focus on AUM or commissions.

The firms that will prosper will be the ones that embrace multiple business models, that will meet younger generations they way they prefer (online and on demand versus in the office). 

They will need to bring in services tailored to generations that have most of their wealth tied up in their 401(K)s until the great wealth transfer.

And they will be willing to charge the younger generation in a whole new way as the AUM / Commission model won’t work for them.

Firms will need to be creative.

They will need to embrace change.

And hopefully, that’s exactly why we are seeing the mass exodus of CEOs in 2024.

I hope that 2025 is going to be the start of a revolution in the financial industry starting with a new crop of CEOs.

I am optimistic and looking forward to see what the future holds for the industry that I love so much!

Am I an ERISA Fiduciary?

This is one of the main questions that I get from advisers. 

Or I get an adviser telling me they don’t have to worry about being an ERISA Fiduciary as they are an SEC Fiduciary. 

Now, I don’t have the time in this blog to write about all the reasons that advisers could potentially end up losing their house by thinking they don’t have to worry about being an ERISA Fiduciary because they are an SEC Fiduciary.

And here is the main reason, you can be “personally” liable for your client’s losses as an ERISA Fiduciary, but not as an SEC adviser!

And your client could file a class action lawsuit in a federal court for a breach of ERISA Fiduciary duty but they do not have that same legal protection when you operate as an SEC Fiduciary.

The risks for an adviser are much higher for an ERISA Fiduciary than they are for an SEC Fiduciary!

And this was done purposefully when ERISA law was signed into law in 1974. 

Apparently, Congress and President Ford didn’t think the protections provided to clients as an “SEC Fiduciary” (that were written in 1940) were adequate for employees with money in their workplace plans.

Since the penalties for breaching your duties are much more severe for ERISA Fiduciaries than they are for SEC Fiduciaries, you might be asking yourself, “Am I an ERISA Fiduciary”?

And this is an answer that has changed over time.

In fact, every presidential administration since President Obama has been trying to re-define “who” is an ERISA Fiduciary.

And the answer is a little complicated.

To be an SEC registered fiduciary you just need to pass your series 65 and have more than $100,000,000 in assets under management (AUM).   (There are a few other ways to be an SEC registered firm as well).

But anyone can become an ERISA Fiduciary, regardless of exams passed or how much money they have under management.

There are currently two different ways to become an ERISA Fiduciary.  Both ways can be found under section 3(21)(a) of ERISA.

3(21)(a)(i) and 3(21)(a)(iii) state that if you have discretion over an ERISA covered account or assets (like 401(k) accounts) then you are an ERISA Fiduciary.  This one is pretty cut and dry.  Really easy to understand.  If you are trading a 401(k) account with discretion, then you my friend are an ERISA Fiduciary.  Period.  Full stop.

Now, if you are not trading with discretion, but you are advising your clients on what to do with their 401(k) accounts, it is a little more complicated.  3(21)(a)(ii) defines that if you are providing non-discretionary investment advice to an ERISA covered account or participant, then you “may” be an ERISA Fiduciary. 

In fact, the Department of Labor (DOL) has created a Five Part Test to determine if a non-discretionary adviser is an ERISA Fiduciary.

Here is the test:

(1) providing advice or recommendations regarding purchasing or selling, or the value of, securities or other property for a fee,

(2) on a regular basis,

(3) pursuant to a mutual understanding that

(4) the investment advice will serve as a primary basis for an investment decision,

(5) the advice is individualized

This is the test that every president since Obama has been trying to update and modernize. 

See, the test was written years before the 401(k) even existed.  And decades before “rolling” money into an IRA was en vogue after switching jobs.

But as of today’s date, since the Biden Administration’s changes were “stayed”, this is the test that we need to use.

If you can answer “yes” to all five questions, then you are an ERISA Fiduciary when providing “non-discretionary” advice.

If there are any parts of the test that you can answer “no” to, then you are not an ERISA Fiduciary. 

So, you can provide your clients with personalized, ongoing advice, but not charge them a fee, and you will not be an ERISA Fiduciary.

Or if you provide “models” to all your clients for a fee but you don’t allow for any individualization of the models, then you are not an ERISA Fiduciary.

See, becoming an ERISA Fiduciary is a matter of function, not what license you hold or how much money you manage.

And you are only an ERISA Fiduciary if you have discretion or you are providing non-discretionary services (and pass the Five Part Test) to an “ERISA Covered” account.

If the account is not covered by ERISA law, then you cannot be an ERISA Fiduciary.

So, it is very important to know when you are providing services to an ERISA covered account, whether you are operating as an ERISA Fiduciary or not.  And if you are, you need to follow the ERISA law and rules created by the DOL.  We have a course designed to teach more about all of this as it is too much to cover in a blog.

And if you work for a large RIA or have a broker-dealer affiliation, be sure to double check with them.  They may not allow you to work as an ERISA Fiduciary due to the high risk. 

Also, be sure to double-check your E&O insurance, as many standard policies do not cover you operating as an ERISA Fiduciary.  Oftentimes you need to add a “rider” to your policy.

So, when advisers ask me, “Am I an ERISA Fiduciary”?, my primary answer always is “maybe”!