Making the Most of 408g Series

Making the Most of 408(g) is a series of four reports (“Series”) designed to inform the decision and optimize the implementation of the 408(g) exemption. Each report is focused on a separate area of interest so that together the Series offers a broad understanding of the opportunities and implications of the 408(g).

The Series consists of reports covering:

• Agreements, Disclosures, Notifications
• Generally Accepted Investment Theories
• Marketing 408(g)
• Risk Management

Another important goal of the Series is to correct certain myths that exist about 408(g). These myths include:

• Myth 1: Certain compensation arrangements are prohibited.
• Myth 2: Meeting certification and audit requirements is complex, intrusive, burdensome and costly.
• Myth 3: Only investment advice is protected and not other recommendations such as rollovers or investment managers.
• Myth 4: The generally accepted investment theory requires complex and expensive systems, such as Robo Advisers.
• Myth 5: Brokerage transactions and IRAs are not protected

408(g) is an exemption that permits fiduciary advisers to IRA and ERISA plans to earn compensation without violating regulations that prohibit improper compensation, subject to an annual audit (and potential certification) assuring that applicable standards are met. 408(g) was written into Federal Laws by the Pension Protection Act of 2006 (“PPA”) and associated regulations issued by the Department of Labor (“DoL”) and Internal Revenue Service (”IRS”) in 2011.

The Congress deliberately provided protection for advisers through what is often referred to as a “Safe Harbor”. Through the 408(g) exemption advisers can act as fiduciaries without the enormous liability and loss of income that is usually associated with that role. The 408(g) exemption protects advisers from regulatory sanctions by the Federal government and its agencies, and defense against any action by States or SROs or litigation from the private sector.

This protection is intended to release the knowledge and experience of the adviser community to enhance the prospects of retirement for millions of workers who don’t have the skill to optimally manage their investments.

Securing this protection while retaining income requires the adviser to comply with certain regulations and submit to independent oversight.