Executives at money managers and other financial firms — bracing for new fiduciary standards from both the DOL and SEC — are feeling increasingly double-teamed by the agencies.
Lawyers representing service providers for plans covered by the Employee Retirement Income Security Act, including money managers and record keepers, report an elevated level of attention from the Department of Labor and the Securities and Exchange Commission, as officials there zero in on conflicts of interest, disclosure and compensation practices like revenue sharing and fees.
“Without a doubt, we have seen more coordination (between the two agencies). They are definitely talking to each other,” said attorney David Kaleda, a principal in the fiduciary responsibility practice of the Groom Law Group in Washington.
Traditionally, the Labor Department's Employee Benefits Security Administration has focused on retirement plan sponsors; service providers would come onto its radar screen for specific reasons, such as whistleblower complaints, or during a plan audit. That began to change in 2013, when the EBSA launched its fiduciary service provider compensation enforcement project.
“In the last two years, there has been a lot of simultaneous activity,” agreed attorney Bradford Campbell, of counsel at Drinker Biddle & Reath LLP in Washington. “We've seen a real focus on service providers. (The DOL and SEC) are getting that data from several sources. “
“This I think is a different strategy. They are doing a lot more investigating of service providers as service providers,” said Mr. Campbell, a former DOL assistant secretary for EBSA.
Compensation practices also have caught the eye of enforcers at the Securities and Exchange Commission, who say that in 2015 they will focus on money managers with conflicts of interest over compensation and how well they disclose them. According to Julie Riewe, co-chief of the SEC enforcement division's asset management unit, a key concern is undisclosed bias toward proprietary products and investments.
“The arrangements aren't different; it's just how the SEC is looking at them that is different,” said Groom's Mr. Kaleda.
“We see the SEC asking very specific questions about compensation arrangements and how they comply with ERISA. There's a greater likelihood that if they see something, or they do not like your explanations, they're going to call DOL,” he said.