Compliance October 28, 2016

DOL Issues More Hurricane Matthew Relief for Plan Sponsors

In addition to relief for hardships and loans provided by the IRS, the DOL is relaxing rules about contribution and loan repayment submissions and blackout notices.
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The U.S. Department of Labor’s (DOL) Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi announced an update on compliance with employee benefit plan rules for those adversely impacted by Hurricane Matthew.

The DOL says it understands that plan fiduciaries, employers, labor organizations, service providers, and participants and beneficiaries may encounter compliance-related issues over the next few months in connection with employee benefit plans covered by the Employee Retirement Income Security Act (ERISA) as the implications of this hurricane unfold.

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The guidance provided in this statement generally applies to employee benefit plans, plan sponsors, employers and employees, and service providers to such employers who were located in counties referenced in Internal Revenue Service (IRS) Announcement 2016-39. That announcement includes relief from certain verification procedures that may be required under retirement plans with respect to plan loans to participants and beneficiaries, hardship distributions and other pension benefit distributions. The DOL said it will not treat any person as having violated the provisions of title I of ERISA solely because they complied with the provisions of the IRS announcement.

In addition, the DOL is providing relief for plan sponsors having trouble meeting rules for forwarding contributions and loan repayments to the plan. The DOL said it will not, solely on the basis of a failure attributable to Hurricane Matthew, seek to enforce the provisions of Title I with respect to a temporary delay in the forwarding of such payments or contributions to an employee pension benefit plan to the extent that affected employers, and service providers, act reasonably, prudently and in the interest of employees to comply as soon as practical under the circumstances. The IRS has informed the DOL that, subject to the foregoing conditions, it will not seek to assess an excise tax with respect to a prohibited transaction under Section 4975 of the Internal Revenue Code resulting solely from such a temporary delay.

NEXT: Blackout notices and group health plan compliance

The DOL notes that in general, Section 101(i) of ERISA and the regulations issued thereunder provide that the administrator of an individual account plan is required to provide 30 days advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited or restricted by a blackout period (i.e., a period of suspension, limitation or restriction of more than three consecutive business days on a participant’s ability to direct investments, obtain loans or obtain other distributions from the plan). The regulations provide an exception to the advance notice requirement when the inability to provide the notice is due to events beyond the reasonable control of the plan administrator and a fiduciary so determines in writing.

Natural disasters, by definition, are beyond the control of a plan administrator. With respect to blackout periods related to Hurricane Matthew, the DOL will not allege a violation of the blackout notice requirements solely on the basis that a fiduciary did not make the required written determination.

In addition, the DOL says it recognizes that plan participants and beneficiaries may encounter an array of problems due to the hurricane, such as difficulties meeting certain deadlines for filing health benefit claims and COBRA elections. The guiding principle for plans must be to act reasonably, prudently and in the interest of the workers and their families who rely on their health plans for their physical and economic well-being. Plan fiduciaries should make reasonable accommodations to prevent the loss of benefits in such cases and should take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established timeframes.

Also, the DOL acknowledges that there may be instances when full and timely compliance by group health plans and issuers may not be possible. It says its approach to enforcement will be marked by an emphasis on compliance assistance and include grace periods and other relief where appropriate, including when physical disruption to a plan or service provider’s principal place of business makes compliance with pre-established timeframes for certain claims’ decisions or disclosures impossible.

More about IRS Hurricane Matthew Guidance is here, and “FAQs for Participants and Beneficiaries Following Hurricane Matthew” is here.

Client Service October 28, 2016

Social Media Boosting Client-Adviser Relationships

Although several regulations still limit use of social media in retirement planning and the wider financial-services industry, many advisers are finding that platforms like Facebook and Twitter are becoming excellent tools for building client relationships.  

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Before reaching retirement age, people go through several life events where money plays a significant role: job changes, getting married, having children, and seeing their kids go through all these steps. For advisers in the retirement-services space, it’s critical that they help participants manage their finances efficiently during these times. But how can they keep track of all these events?

Look no further than what is in your pocket: social media.

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Despite the historic pushback from social media in the asset-management space due to regulatory pressure, financial advisers have been embracing social media in the past few years. According to the 2016 study “Advisors ARE Social” by Putnam Investments, 85% of the more than 1,000 advisers surveyed said they used social media for business, up from 75% in 2014.

However, the report also indicated that 15% of advisers were not using social media for business at all, and among the top three reasons for why they weren’t engaging was “my clients aren’t there.” There is a common misconception that older generations, particularly those closest to retirement, aren’t online. They most certainly are. According to a survey by digital-communications agency iStrategyLabs, people between the ages of 50 and 64 increased their presence on Facebook alone by 80% between 2011 and the first half of 2014.

Moreover, a 2014 LinkedIn study reported that more than five million high-net worth people in North America were likely to use social media to assist with financial decision-making.

So the social adviser helping participants with investments like managed accounts can benefit from connecting with them on social media. Platforms like Facebook, Twitter and LinkedIn—defined as the “Big Three” in the Putnam Investment study—offer a window into their clients’ life events in real time.  

NEXT: Keeping up with life events

Several advisers reflected on this notion during a panel at the Securities Industry and Financial Markets Association (SIFMA)’s Social Media & Digital Marketing Seminar. Julia C. Fellerhoff, digital content specialist at financial-services firm Janney Montgomery Scott, called these life events “social signals,” which can come in the form of photos, videos, or comments.

They can be positive such as noticing posts about a clients’ daughter getting married or even negative like finding out a client got into an accident or is falling ill and in a hospital. Jamie Cox, managing partner at LPL Financial shared a story about how he found out a client was critically ill after scrolling through Twitter and Facebook, before he reached out to him.

He added that these life events were more often presented on social channels like Facebook and Twitter. The Putnam Investments study reported that adviser usage among Facebook jumped to 54% in 2016 from 36% in 2014; and 44% of advisers are using Twitter, up from 27% in 2014.

However, money was not the first thing these advisers talked about when reaching out to their clients based on social media activity. Rather, these posts served as a reason to re-connect and start a conversation that would later trigger a more formal one about money management.

But social media isn’t a one-way mirror. It also offers investors a personal view into the lives of their money managers in ways that were perhaps not as common before the days of Facebook and Twitter. Mark Kaschenbach, vice president of investments at Wells Fargo Advisors, echoes this view. “It’s not just about listening, it’s also letting them listen to what we’re doing,” he said at the panel.  

“We want clients to see us as regular people and not just as someone on a desk running an algorithm or trading their money, and we’re all about numbers. We’re married. We have charitable endeavors. It humanizes us.”

And that strength in client relationships can boost referrals. Kaschenbach says he has gained prospects from clients who have recommended their friends to reach out to him on LinkedIn or Twitter.

According to the Putnam Investments survey, 80% of respondents said they were using social media to win new clients, up from 49% in 2013. The study also showed they were gaining an average of $14.6 million in new assets.

NEXT: Educating participants and plan sponsors through social media

Beyond fostering a personal connection, social media can also serve as a useful educational platform on topics like financial information, financial wellness, asset management and learning about retirement and other points that resonate throughout the financial-services space.  

According to a Brightwork study conducted for MassMutual Retirement Services, participants who actively contribute to their plans are more likely to use social media. A recent study by Spectrum Group suggested that participants are interested in retirement plan information on social media, with 49% using Facebook and 39% using LinkedIn.

Fellerhoff noted that the most engaging content her firm’s advisers shared on social media were posts about topics like personal finance, financial planning, and especially human interest stories that explored these subjects.

For plan sponsors, plan advisers can benefit from using their social media posts to share content about topics like plan design trends, educational material about the mechanics of automatic programs like qualified direct investment alternatives (QDIA), or relevant news about the changing fiduciary landscape. Although a 2013 study conducted for the Northwestern Mutual Granum Center for Financial Security at The American College found less-than-favorable levels of engagement between financial advisers and consumers, it found that these were some of the topics plan sponsors found most engaging, especially on LinkedIn.    

A Cogent Research study found that 63% of deferred contribution (DC) plan sponsors are using social media as a regular source of information for 401(k) plans and for the providers that serve this market. The study of more than 1,000 plan sponsors of varying size were seeking this information through websites or blogs (39%), LinkedIn (24%), and Facebook (22%).

But just because an article or blog post can be deemed useful for a specific audience, it doesn’t mean every adviser can use it on social media. When it comes to social media, advisers ultimately have to abide by the limitations set by the Securities Exchange Commission, the Financial Industry Regulatory Authority (FINRA), and their company’s in-house compliance rules. But this doesn’t mean advisers can’t navigate these roadblocks in order to use social media effectively.

NEXT: Share and comply

According to the Putnam Investments survey, the No.1 reason why non-users aren’t engaging in social media is compliance and it has remained at the top for the past three years.

FINRA and the SEC generally place social media content under two categories: static and interactive. Static content is considered an advertisement and requires pre-approval by a principal of the firm. Interactive content is seen more like a presentation in front of a group of investors and doesn’t require pre-approval, but does require post review. Of course, the lines could blur, so clear communication with the firm’s compliance department is essential.

As Kaschenbach noted, compliance guidelines can be as specific as which social media sites advisers may use for business and which must remain personal, and even what type of device can be used for business-related social media activity. Still, various technologies exist to facilitate this filtering process. Fellerhoff noted that her firm provides these tools as well as different training programs about how to use them.

According to the Putnam Investments study, advisers surveyed are generally looking at a “less vague and more manageable compliance requirements.” Eighty-one percent of respondents said their firms have social media policies and they understand them.

Still, there may be some room for improvement. Many of the panelists expressed a desire to have more freedom in marketing their services using tools like YouTube, which the Putnam Investments study said 35% of advisers reported using, up from 25% in 2013, but slightly down from 35% in 2014.

In an interview with PLANADVISER, Director of Social Media for Putnam Investments Jayme Lacour said he expects the sophistication of social media tools to increase. “We see the adoption of all three major social networks and some of the minor ones as part of an adviser’s overall scheme to bring new assets and clients into the business.”

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