More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
A new study of target-date fund investments by the Employee Benefit Research Institute (EBRI) found that participants in 401(k) plans dominated by those with low income and short tenure at their workplace tend to contribute less than those in plans dominated by participants with high income and long tenure. EBRI says its study also finds that participants' investments in target-date funds with different equity allocations differ by plan demographics based on participants' income and/or tenure. In particular, target-date fund users with 90% or more of their account balances in target-date funds who are in 401(k) plans dominated by low-income and short-tenure participants tend to hold target-date funds with lower equity allocations compared with their counterparts in plans dominated by high-income and long-tenure participants. The EBRI analysis found that although target-date funds with different equity glide paths affect the retirement income replacement success rate, participant contribution rates have a stronger impact. The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) and the SEC held a joint public hearing on June 18, 2009, on the investment of 401(k) and other retirement plans in target-date-type plans.
EBSA has once again extended the applicability and effective dates of the final rule on investment advice under the Pension Protection Act to November 18, 2009. On March 20, the department extended the applicability and effective dates of the final regulation from March 23 to May 22, but the department has now determined that additional time is needed to consider the legal and policy issues raised by comments on the final rule.
The Generate Retirement Ownership Through Long-Term Holding (GROWTH) Act (S. 1082), introduced by Senators Mike Crapo (R-Idaho) and Tim Johnson (D-South Dakota), would amend the Internal Revenue Code to provide that no gain shall be recognized on capital gain dividends distributed by a regulated investment company if that dividend is automatically reinvested in the company through a dividend reinvestment plan. Crapo noted that of the 92 million Americans who own mutual funds, nearly 37 million own them in taxable accounts, including 29 million in long-term taxable accounts. For these investors, he continued, "one of the most frustrating aspects of the tax law is this: for taxable accounts, they must pay taxes today on fund shares they may not sell for years. Obviously, fund shareholders, like other investors, expect to be taxed when they sell their shares, but not before. Nor should they be. Not when they are still building for retirement and other long-term financial goals." ICI President and CEO Paul Schott Stevens said in a statement that the GROWTH Act would "finally give equal tax treatment to mutual fund shareholders who decide to reinvest dividends and would allow them to let their money work longer toward building personal savings goals." ICI research shows, he said, "that most mutual fund investors are focused on retirement savings, but also invest in mutual funds to achieve other savings goals including establishing a rainy day fund for emergencies and helping pay for education."