Financial advisory firms, particularly smaller ones, are going to face more litigation risks as the details of the Department of Labor fiduciary rule are implemented, says Suzanne E. Miscik, the vice president of retirement plan and fiduciary services for Northeast Professional Planning Group Inc. in Red Bank, N.J.
“The IRS is going to be looking at the administration of retirement plans to see if everything is being carried out properly” to meet all the federal regulations, says Miscik. “In addition, we are becoming a more litigious society, so more retirement plan participants are going to sue retirement plan sponsors and advisors and the companies providing the plans.
“I don’t want to scare advisors who deal with retirement plans, but I want to educate them to what is possible,” she said following her presentation, “Smart Fiduciaries—Rules of the Role.”
Miscik was a keynote speaker at the Financial Planning Association of New Jersey’s annual conference at William Paterson University in Wayne, N.J., on Thursday.
Lawsuits will be filed over investment choices, she said, as well as over administrative practices, fees and communication between plan sponsors and participants, to name only a few problem areas.
“And the suits are flowing downstream,” she added. “They are not being filed against just the big plans these days.”
As more of the work of administering retirement plans is shifted to third parties, advisors need to be careful to communicate to the plan sponsors the value they bring if they want to justify the fees they charge, she says.
Advisory firms must take steps to make sure a process is in place and that their key employees are well versed in administering plans. That will also make their firms more valuable when they want to sell or make some other transition, said John J. Crosby, managing director of Individual Financial Services in Middletown, N.J., who attended Miscik’s session.
“The retirement plan advisor may be doing everything right, but still get sued,” Crosby said, “but he or she will be able to successfully defend against the allegations. The key is documentation.”