DOL Continues to Inspect SEC-Registered Advisers
Whatís behind the Department of Laborís recent interest in examining investment advisers?
"I donít think there is any one thing that is driving it," said Rick Matta of the Groom Law Group. "They are following up on SEC exams, they are following up on [New York attorney general Eliot Spitzerís] exams . . . they kind of felt pushed into this a little bit," he said. "The fact that everybody else has examined these [firms,] they feel that they have to get involved." DOL, he said, may "feel like they are under a bit of pressure" and "need to get on board and do the same thing."
Matta also noted that DOL has been working on a proposal to enhance the transparency of fees paid by 401(k) plan participants, and may be examining firms to obtain additional information about those fees and fee disclosures. "They are pretty close to being done," he said.
Historically, Matta noted, DOL has conducted routine exams of advisers, but typically focused on examining the adviserís own plans, not the adviserís client plans. "To some extent, in the past, they felt that the SEC was fully conversant with the ERISA issues and could deal with it," he said.
IM Insight has obtained a copy of a recent DOL examination request list. The list, which weíve been asked not to reproduce, is about three and a half pages long and covers an inspection period of almost three years. In many respects, the list is similar to those used by SEC examiners, except that it focuses on the recipientís ERISA clients. For example, advisers are asked to provide various details about each of its ERISA clients, such as the name of the plan and its sponsor, trustee(s), investment manager, and custodian.
The list asks for a copy of the firmís ERISA contract, "asset listings of portfolio statements" for all current and past ERISA clients, and copies of the firmís policies and procedures covering investing, trading, brokerage, cash management, recordkeeping, entertainment, and proxy voting.
Not surprisingly, the list focuses on information that can be used to identify prohibited transactions, such as investments in affiliated products. One item asks for documents identifying mutual funds and hedge funds managed by the firm or an affiliate in which an ERISA client may be invested, along with financial statements, prospectuses, offering memos, and other documentation for each affiliated fund.
The list also asks for a schedule of fees paid by ERISA clients, including information on management fees, commissions, and 12b-1 fees. The list asks for four yearsí worth of brokerage reports, as well as detailed information about cross trades, such as cross-trade procedures and order tickets and confirms for cross-trades involving ERISA accounts.