FPA Conference 2024

Last week I had the incredible honor of landing my first “paid” speaking gig.

So, I want to give a great big shout out and say thank you to the Financial Planning Association (FPA) for allowing me to share my passion of ERISA law with many of your members.

Yes, you read that right.

I am very passionate about ERISA law. Specifically, the intersection of ERISA law and the financial professional working with their clients.

We all have clients who ask us how they should be investing their 401(k) plan at work.

Many advisers don’t know that answering that question may make you an ERISA Fiduciary, which then means there are some very specific things you need to do as proscribed by ERISA and the Department of Labor (DOL).

And if you don’t do what ERISA and the DOL require, you may have to pay back all of your clients’  losses, your fees charged, an excise tax and anything else the courts decide.

And yes, I said that courts.

The dirty secret in our industry is that working with ERISA accounts and participants is about the only thing you can do in our industry that gives your clients direct access to the court system.

And to make matters worse, they also can change a single lawsuit into a “class action” lawsuit.

So, most of the largest institutions do everything they can to make sure their financial professionals DO NOT become “ERISA Fiduciaries” (which is different than being an “SEC Fiduciary”).

And this is why I am passionate about ERISA law!

This is why I am an ERISA Nerd!

I want to share my passion with as many advisers as I can and let them know that you don’t have to fear the DOL. You don’t have to worry about risking your personal assets (as those are what will be used if you lose a lawsuit / there is no “piercing of the veil” to get access to your personal assets in an ERISA case).

I want to let every financial adviser know, you just have to do what ERISA law and the DOL say you have to.

Check the boxes!

Do it properly!

And that is what I talked about at the FPA Conference last week in Columbus Ohio.

And I wholeheartedly thank the FPA for allowing me to share my passion and knowledge with your members.

I met a lot of good people at that conference and caught up with friends at the conference.

And I think I may have converted a few to become a little bit more of an ERISA nerd than they would like to admit!

Stay confident my friends and make it an awesome day!

Fidelity vs pontera

Last night I was chilling in my pool around 8pm after playing a couple of hours of pickleball (I live in Florida, don’t judge! - lol)

I opened a Sam Adams (Octoberfest) and picked up my cell phone.

I was surprised by the number of emails I received forwarding me the “breaking news” from Financial Advisor IQ. The title of the article was, “Fidelity to Block Credential Sharing on 401(k) accounts; Pontera Rallies FA Troops”. (Click the picture below to read the full article).

I was not shocked by Fidelity’s decision and here is why. . .

In addition to being an “ERISA Nerd”, I am the co-founder of Plan Confidence Corp.

Plan Confidence is a fintech firm that does the research, advice, documentation and (seamlessly) delivers a financial firm’s advice to their “held away” participants; all while ensuring their ERISA compliance.

Over the past several years, there have been a couple of technology companies allowing the ability for advisers to place trades for “held away” accounts, by “duping” the custodians to believe the client logged in.

We have embraced this technology at Plan Confidence and even enhanced our software to deliver “Trade Files” to advisers with the click of a button.

This was done intentionally, so financial advisers could easily implement their advice into Pontera, thus creating a paper trail from ERISA compliant advice through implementation.  The combination of our software plus Pontera saved adviser’s a ton of time when (compliantly) working with “held away” accounts.

Fidelity, Vanguard, Schwab, etc have very smart people working for them.

They knew about Pontera and advisers wanting to help their clients better manage their 401(k) accounts. Pontera made this easy for advisers to do.

So, why would Fidelity have an issue with this? 

Because the way Pontera “dupes” the custodians.

Pontera captures the participant’s Username, login and (amends) the two factor authentication (2FA).

The adviser programs Pontera, never having access to the custodian or the participant’s credentials and Pontera “communicates” the trades to the custodian. When they “communicate” this information, they are logging in with the participant’s Username, password and 2FA.

So, Pontera is good at letting adviser’s trade their clients “held away” accounts and avoid SEC custody issues.

However, the adviser’s client is also Fidelity’s client!

And Fidelity has responsibilities to that client as well. And having them share their credentials puts Fidelity in the awkward position of tacitly allowing a third party to access a 401(k) account that Fidelity needs (legally) to protect.

So, Fidelity made the announcement they are not going to allow third party credential sharing anymore. I know Fidelity’s announcement may change the way many advisers work with “held away” accounts after 10/2/2024.

Please be assured that I have personally reached Fidelity to gather more information and see if they have an API that can implement your trades without the need for credential sharing.

I think it is imperative that I speak with the other three companies that are on the Kitces Fintech Map in the “held away assets” category (which was just recently added). 

I’ve already talked to Absolute Capital and I’ve reached out Pontera and Future Capital to get their opinions, so I can stay at the forefront of advisers (compliantly) working with their “held away” accounts.

As soon as I know more, I will let you know more.

Until then, stay confident my friends!

-The ERISA Nerd

To read the full article, click the picture below:

September 15th, 2008: The day the financial industry changed forever!

You may be thinking what does 9/15/2008 have anything to do with ERISA?

The short answer is nothing!

On September 15, 2008, we saw two of the world’s largest financial institutions fail on the same day. And it did not affect ERISA law in one iota.

However, it was the “birth” of the ERISA Nerd!

Here is the back story . . .

I had a boutique investment firm I was running in the suburbs of Chicago in 2008 called Quintessential Retirement Services, Inc (QRS, Inc). We specialized in “bringing the tools of the wealthy to the middle market”.

The stock market had been steadily falling since October 2007.

It seemed that there was more bad news that moved the markets lower on the new every single day.

So, the Fed, yeah that “Fed”, started cutting interest rates to try and ease economic fears (it didn’t work).

Friday, September 12th, 2008, there were rumors that many financial institutions were on the brink of disaster.

I remember waking up around 3am on the morning on Monday, September 15th. I walked into a spare bedroom I converted to an office (way before “working from home” was en vogue).  I flipped on the small TV and turned on CNBC. Normally at 3am, there would be an infomercial for a vacuum or some other useless home product.

But to my surprise, the morning news anchors were live.

This was bad. Very, very bad!

I sat down in my chair and turned up the volume.

And to my horror, I heard the news. Lehman Brothers and Merrill Lynch had failed over the weekend and needed to file bankruptcy.

And many other firms were on the brink as well.

OMG!

Two of the largest and most respected names in the industry were done!

On the same day.

At first I thought, “this is great. I’ll be the richest guy in my suburb when all those Merrill clients need to find a new home. I’ll have my assistant print out blank ACAT forms and we will have a line outside the office made up of new clients moving over their accounts from their bankrupt firm”.

Then I thought, the markets!?!?

What’s going to happen to the markets? This is going to be a disaster!

Especially after the Bush administration said they have no intentions of bailing out Wall Street.

And to my surprise, there was not much reaction on Monday to the news. It seemed a big nothing burger that two financial firms are going to file bankruptcy. It seemed like, ok, we have BK courts for a reason. There will be a systemic winddown of both firms and life goes on.

Until . . .

The Federal Government got involved.

The government forced Bank of America to pay full price for the (technically, but not legally) bankrupted Merrill Lynch. And then a few days later bailed out financial insurance giant AIG. The bailouts had begun, and the ramifications were disastrous.

We have never seen bailouts in the modern era.

So, the markets went into full “panic” mode. Like they always do when “uncertainty” creeps into the economy.

The S&P 500 lost over 30% from September -December 2008.

Stocks lost money. Bonds lost money. Cash lost money.

It was a “free for all” and no one had ever seen anything like it.

And then, and this is how the ERISA Nerd was born, my clients started calling me.

They would say, “Kevin, forget the money you are handling, look at my 401(k). I am getting crushed. I am losing half my money. Help! Please help me!”

I only needed to hear that from a dozen clients before I knew I had to do something.

I knew enough about the risks of giving 401(k) advice, because up to that point, I always was dually registered with the SEC as an IAR and with a Broker/Dealer (B/D) as a FINRA rep. The B/Ds would constantly remind us to never give advice to 401(k) participants due to ERISA law.

At that time, I didn’t understand what they meant or why they were so scared of ERISA.

So, I bought every book on ERISA I could find (there were not many), printed out all of ERISA law and googled “ERISA”, “401k Advice”, “ERISA compliance” and read.

And read.

And read.

I got a very good crash course in how powerful ERISA was and why my B/D was terrified of it.

Specifically, it was Section 1109, which requires “personal liability” to pay back any losses if you lose an ERISA lawsuit.

And the fact that a participant can file a lawsuit and turn it into a “class action” lawsuit. The B/Ds knew what I didn’t (at the time), working with an ERISA participant is about the only thing you can do as a “financial professional” that can land you in court!

Every agreement I have seen always has a Mandatory Arbitration Agreement in its language.

ERISA gives participants direct access to courts.

So, I had to convince my B/D that I knew what I was doing.

Specifically, I had to show them that ERISA requires every adviser to follow a written prudent process. And it requires you to document that you followed this process; each and every time you advised your client for a fee.

So, I got to work, showed them I knew what I was doing, how I was going to document my work and that I had all my ducks in a row and that I could compliantly offer advice to my clients with ERISA covered accounts (like a 401(k).

And my B/D signed off on what I was doing and the ERISA Nerd was born!