2020 brings with it a host of new opportunities for investment advisers and consultants working with retirement plans and individuals saving for retirement. Compliance with Form CRS will create new branding opportunities. The SECURE Act’s "pooled employer plans" provision will create a new market for investment advisory services. Additionally the elimination of “stretch IRAs” will create a need for more innovative one-on-one financial planning. Whatever the market segment you work with, it is important to understand the changes that will impact your business this year.
Importantly, new rules come online this year that will reset the lines between registered investment advisers and broker-dealers. In June, the Securities and Exchange Commission’s Form CRS goes into effect.
As part of a package of rules that primarily have initial compliance dates this year, the SEC clarified that registered investment advisers are “fiduciaries” and that broker-dealers generally are not. The SEC went on to note that it would therefore generally be misleading for brokers to describe their services as “fiduciary” or to refer to themselves as “advisors” or “advisers.” To make sure that retail customers are aware of the difference between brokerage services and advisory services, brokers and investment advisers will be required as of mid-year to provide an up-front and thereafter annual four-page summary (Form CRS) describing the services the broker or registered investment adviser is offering and explaining how brokers and investment advisers are different. Many registered investment advisers and brokers are preparing for the highlighting of these differences in 2020.
For advisers who focus on the retirement plan market, 2020 is going to be the year where we see the development of a new type of plan. Traditionally, any employer that has wanted to offer a retirement plan has had to adopt its own plan. This has meant that most of the smallest employers (under 50 employees) have not offered plans, and many small employers have offered plans where they have not retained outside assistance from advisers to determine how to invest the assets of their plans.
As a result of the SECURE Act, 2020 will see the development of “pooled employer plans” (PEPs) for their “go live” dates in 2021. Pooled employer plans will be plans where multiple employers can elect to have their employees participate in a plan sponsored by a third-party.
While some investment advisers may try to create their own PEP, the real opportunity will be pairing with other financial institutions that sponsor PEPs but that do not want to make the investment decisions for the investment options that will be made available to PEP participants. As small employers begin to offer retirement benefits to their employees through PEPs, advisers who provide advice or management services to PEPs could see rapid growth of their assets under management/advisement.
A third opportunity for advisers is in finding new solutions for intergenerational wealth transfer in the retail space. The SECURE Act changed the rules for IRAs inherited from original IRA owners, commonly called inherited IRAs. Prior to 2020, IRAs were often structured so that when the IRA holder died, the beneficiaries were able to take distributions from the inherited IRA over their lifespan. For individuals who die on and after Jan. 1 of this year, many beneficiaries (subject to exceptions included in the SECURE Act) who would have been able to take advantage of the reduced tax burden of taking out only a little each year will be required to take distributions over a 10-year window.
This change means bigger annual withdrawals and higher annual tax burdens. With existing clients and new clients, advisers can use this change to show value by making their clients aware of the change and by working with them to develop innovative solutions.
Regardless of whether you work with individuals or institutions, regulatory changes make 2020 a year of opportunity. The retirement landscape is changing. January is the time to develop a strategy for capitalizing on these developments.
David N. Levine and Kevin L. Walsh are principals at Groom Law Group.
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