The Labor Department is investigating broker-dealers and registered investment advisers that work with retirement plans, targeting advisers' receipt of improper or undisclosed compensation.
At least eight of these investigations have been commenced in recent months, according to a report co-authored by Fred Reish, a partner at Drinker Biddle & Reath LLP. He and his colleagues have been involved in three of these probes, according to the report.
The investigations are tied to the Labor Department's Consultant/Adviser Project, a national enforcement initiative that focuses on advisers' and consultants' pocketing undisclosed or improper pay.
Though the program has been around for several years, the regulatory agency is likely to emphasize reinforcement in light of upcoming regulations that would require firms and other service providers to disclose their fees to plan clients and participants, according to the report.
A DOL investigation requires companies to turn in reams of documents related to accounts for both broker-dealer and RIA accounts. Regulators will be looking for agreements between the company and plan clients, documents that describe the services provided to plans, and information on providing plan clients with advice tied to securities valuation, according to the report.
The department did not have an immediate comment about the probe. But in his report, Mr. Reish noted: “It appears the DOL is requesting this information in order to determine whether the provider is a fiduciary or perhaps a functional fiduciary." And he warned that "providers such as broker-dealers who do not acknowledge fiduciary status and believe they are not acting as fiduciaries may nonetheless become functional fiduciaries by virtue of providing individualized advice or being able to set their compensation.”
The Consultant/Adviser Project has netted a number of wins for the Labor Department.
Last year, Metropolitan Life Insurance Co. agreed to pay $13.5 million in conjunction with a joint investigation by the DOL, the FBI and the Internal Revenue Service.
RELATED ITEM Advisers favorite VA providers
That probe revealed that the insurer made improper payments to an insurance brokerage firm in order to steer clients toward buying MetLife group insurance products, according to authorities' announcement of the settlement. The payments weren't disclosed to plan administrators and were described as “communication fees” or “request-for-proposal fees,” lumped into the rates MetLife had charged the insured, according to federal authorities.
"This settlement relates to contingent compensation and other payments made to a particular broker more than six years ago," MetLife spokeswoman Jessica Ong wrote in an e-mail. "We are pleased to put the matter behind us."
In 2009, the DOL settled with Consulting Services Group LLC and its affiliated broker-dealer Trading Services Group Inc. for nearly $300,000.
The department's Employee Benefits Security Administration found that the firms received undisclosed and unauthorized compensation, and failed to provide commission rebates to some of its Employee Retirement Income Security Act plans from 2002 to 2006. A call to Consulting Services Group's marketing director, Jennifer Murff, was not immediately returned.
