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Exclusive Interview: Ary Rosenbaum says Scottrade Still on the Hook Despite 5th Circuit Ruling

Exclusive Interview: Ary Rosenbaum says Scottrade Still on the Hook Despite 5th Circuit Ruling
March 20
00:03 2018

If you’ve been reading industry news for some time, then you’ve certainly read the work of Ary Rosenbaum. The prolific and oft-quoted ERISA attorney has written his second book titled – what else? – The Greatest 401(k) Book Sequel Ever. If you like classic movies, you’ll like this book. If you are fond of that unique aura of New York City celebrities, you’ll like this book. If you like to peek behind the curtain and see how the retirement industry sausage is really made, you’ll like this book. We sat down and talked to Ary about his new book, as well as some of the current topics faced by 401k fiduciaries.

FN: Ary, although you’re a regular source for many of our articles, it’s been too long since we’ve had a chance to sit down and conduct an Exclusive Interview with you. (The last time was March 13, 2012, “Exclusive Interview with Ary Rosenbaum: The 3 Biggest Compliance Obstacles for 401k Plan Sponsors?”) That’s a lot that’s transpired over the last six years, but, before we get into that, you’ve got a new book out. Tell us a little bit about the book. Why did you write it and who can benefit more from reading it?
Rosenbaum: It’s been 4 years since the first book and I think there were a lot of changes in the business and my life that I just thought I had more to say in giving advice to plan providers.

FN: OK, you’ve piqued my interest. Your book is a sequel and you lead into it with a quick critique of famous (and infamous) Hollywood sequels. There, you reveal your favorite movie sequel, but that just prompts this question: What’s your favorite film of all time (not including sequels)? Why do you like it so much? In what way has it inspired you? How does it broach the fiduciary topic (they always do, one way or another)?
Rosenbaum: Since I’ve been 9 years old, my favorite movie is Airplane! I loved it before I was old enough to understand all the jokes, like the Anita Bryant reference. I love it because the movie is played straight, that’s why they hired serious actors like Leslie Nielsen (at the time, a serious actor), Peter Graves, and Lloyd Bridges. It’s actually a send-up of a movie called Zero Hour where a man named Ted Striker does save a plane when the flight crew ate bad fish. Playing it straight despite the absurd lines reminds me of the plan providers who will tell something to a plan sponsor or other provider with a straight face and I know is absurd. I heard of a TPA trying to squeeze in some new unnecessary restatements because of an amendment for disability distributions.

FN: The book tells your story of your near miss in the Hutcheson SNAFU. What’s the most important lesson from that tale?
Rosenbaum: I think the lesson is to always trust your gut. When Matt was claiming that he was being talked about as a potential Secretary of Labor in either an Obama or Romney White House in 2012 and I knew it was absurd, I should have known he was a liar that couldn’t be trusted.

FN: What’s really nice about your book is the way you weave popular culture and personal stories into the 401k theme. The book offers important insights for both plan sponsors and plan providers. What’s the one thing you’d like plan sponsors to take away from the book? What’s the one thing you’d like plan providers to take away from the book?
Rosenbaum: While the book is geared more to plan providers, the lesson for any 401k plan sponsor is to understand that they should always get an independent opinion because their providers might tell them what the providers wants the plan sponsor to hear. For the plan provider, I think the takeaway is that human nature and decision-making is not always rational and that plan sponsors may make incorrect decisions that they think is right. I use my time as a Synagogue Vice President a lot in the book to underline the premise that people won’t make the best choice out there for the organization; they may make choices based on what’s best for the leadership even if it’s selfish and detrimental to the organization. People make bad choices because while we know it’s a bad choice, they think it’s the right choice and we may not always know the reason behind those choices.

FN: Moving on to regulatory matters, what are your thoughts on the DOL’s Conflict-of-Interest (a.k.a. “Fiduciary”) Rule?
Rosenbaum: It’s like a bad soap opera. In the end, the marketplace is going to want a fiduciary standard for all plan advisers.

FN: The DOL (under the Obama administration) seemed to want the Rule to be used as a helpful guideline rather than a sharp whip. Some states, on the other hand, appear intent on using it as a strict enforcement rod. What do you think is motivating states to act unilaterally on this? In the long run, in what way is this positive for the concept of “Fiduciary”? In what ways do these actions hurt the Fiduciary effort in the long run?
Rosenbaum: States often act when they see the Federal government punting rather than enforcing. States act when they think there is an absence of authority. I think any situation where advisers have to abide by a fiduciary standard is a win for plan sponsors and participants. I know there are brokers who want the new rule killed for good and my advice to them is to accept what they have now, rather than waiting for the next Democrat administration to implement a tougher fiduciary rule because the evil you know is better than the evil you don’t.

FN: You’ve had a few days to consider the ruling of the 5th circuit effectively ending the Fiduciary Rule as we know it. Does it really? Does this overrule the 10th circuit ruling that came two days before the 5th circuit’s ruling? How does this impact the Massachusetts Scottrade case? There’s another court case pending, is it possible this will revive the Fiduciary Rule? If it’s up to the DOL to appeal, why would it make sense for them to do that (or not do that)?
Rosenbaum: When we have circuit courts coming up with different views of the Fiduciary Rule, we’ll likely see this issue being argued before the Supreme Court. The 5th circuit and 10th circuit decisions don’t impact each other since they are separate circuits. Massachusetts is part of the First circuit, so the only impact as to their state action against Scottrade would be if the Supreme Court or the First Circuit vacated the rule.

FN: The SEC has recently indicated they will be pursuing their own Fiduciary Rule. What are the potential advantages and disadvantages with the SEC starting from scratch and not “harmonizing” with the DOL Rule? On the flip side, what dangers does “harmonization” pose?
Rosenbaum: I’m all in favor of one standard and with two agencies with two different start times and now two different administrations, we’re probably not going to get a rule that will harmonize. What’s great for securities and ERISA litigators won’t be good for the marketplace.

FN: In generally, where do you see the trend of fiduciary liability headed? Is it going up or down? Is the trend different for plan sponsors compared to plan service providers?
Rosenbaum: ERISA litigators will always come up with ideas on what would be great ideas for litigation and the fact is that larger pockets will determine who they will target. I think any mutual fund company with proprietary funds in their employees’ 401k plan are still a target. I think larger plans that don’t have the cheapest share classes and use revenue sharing will be targets as well. You will have increased fiduciary liability until defendants start winning lawsuits on a consistent basis.

FN: What’s the most frequently asked question your get from plan sponsors? Why do you think they’re asking it? What’s the answer you usually give them?
Rosenbaum: I think the most frequently asked question is “Can you help?” Most plan sponsors are reactive rather than pro-active. They tend to only seek my advice and guidance when something goes bad. I always tell people that I offer this legal review called The Retirement Plan Tune-Up for $750 and I can count on two hands how many plan sponsors have hired me for one.

FN: What’s the most frequently asked question your get from plan service providers? Why do you think they’re asking it? What’s the answer you usually give them?
Rosenbaum: The question I get from plan providers usually deals with how they can stand out in the marketplace and they ask that because it’s so competitive. Again, that’s one of the reasons for a second book. It’s to advise them how they need to stand out and get noticed and one way is to see how the competition is and try to offer something out there that other providers aren’t.

FN: Finally, if there were to be some future upcoming blockbuster movie – Ary Rosenbaum Saves the Day! – what famous Hollywood actor would play you? Speaking of the future, what’s the “coming thing” as it pertains to the retirement plan industry and why do you think so?
Rosenbaum: I’d love to say Clint Eastwood, but I’d have to pick someone from my age group and go with Jason Bateman. It’s a shame that It’s Your Move only lasted one season. I think the coming thing is advisers coming to terms that they’re more than just financial advisers, that they need to be plan consultants.

FN: Do you have any other thoughts or ideas you feel our readers might benefit from
Rosenbaum: Again, I think a good chunk of the book is advising plan providers to understand that when dealing with clients and other plan providers, they’re dealing with human beings with feelings and that good communication and empathy can go a long way to maintaining and recruiting clients. Many time, all clients want to know is that you care and if you show that you care, that might be better than anything you’re doing as a plan provider.

FN: Ary, as usual, you’ve been a font of insight and information. There’s little doubt our reader’s absolutely benefit from reading your thoughts and ideas (and we highly encourage them to read your book for more). Good luck with your new book and keep those classic movie references coming!

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

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