Fred Reish is a shareholder of the law firm of Reish & Reicher. He specializes in employee benefits law. He is a member of the bar in the State of California, the State of Arizona and the District of Columbia. Fred serves as a consultant on ERISA litigation and FINRA arbitration, with a focus on cases involving broker-dealers, registered investment advisers, financial service companies and other service providers. Fred has also been engaged to serve as an expert witness in state courts, federal courts and FINRA arbitration proceedings involving issues as diverse as fiduciary liability, fiduciary status of advisers, prohibited transactions, plan interpretation, nonqualified deferred compensation plans, and bankruptcy issues for ERISA plans. Fred was recognized by 401kWire as the 401(k) Industryâ€™s Most Influential Person for 2007. Fred received a B.S. from Arizona State University and a J.D. from the University of Arizona.
BrightScope:Â Can you tell us more about your firm and recent changes (new name etc)?
Fred Reish: We have been debating the future direction of the firm for several years. Should we be a full-service firm? An ERISA- and Employment Law focused-firm? And so on. Earlier this year, we reached a decision on those issues . . . actually, we reached two decisions. The first is that, from an industry perspective we want to concentrate on representing companies that provide investments and services to retirement plans. That includes bundled providers, independent recordkeepers, third party administrators, insurance companies, and mutual fund complexes. And, it specifically includes RIA firms and broker-dealers. For those clients, we have set up a financial services group within the firm to combine consulting and litigation attorneys in a way that solves the clientsâ€™ needs for attorneys who know both the securities laws and ERISA. The second decision was that, from a plan sponsor perspective, we want to focus on helping employers meet their needs for both compliance services and risk management advice. Furthermore, we want to do that within the HR context of employee relations. So, we have combined ERISA attorneys and Employment Law attorneys into a single practice group. They will focus primarily on mid-market employers–to service the needs of large, mid-sized and small companies. The name change reflects both the structural changes and changes in the attorneys in the firm.
BrightScope:Many have said that the next major wave of fee litigation will be against service providers.Â Do you agree with this assessment?
Fred Reish:It seems almost certain that the next wave of litigation will be on issues related to costs, revenue sharing and investments, and that these cases will include claims against service providers. In addition, there will be an increasing number of lawsuits filed against mid-sized and smaller companies and their advisers and providers. Also, as stated earlier, I think the claims will focus on costs, revenue sharing, and investments for a simple reason . . . because thatâ€™s where the money is. And, these are also areas where many, and perhaps most, plan sponsors lack the detailed knowledge to properly understand, investigate and benchmark the issues.
BrightScope: We have also heard that there might be more litigation against small plans.Â Is that likely?
Fred Reish: Yes, as the law develops through litigation and court decisions, the plaintiffsâ€™ attorneys become more experienced and the law becomes clearer. Those changes enable the attorneys for participants to more easily sue plan fiduciaries for losses and also enable the attorneys for plan sponsors to sue advisers and providers. The combined effect of these changes is that, as the ease and cost of litigation improves from a plaintiffâ€™s perspective, there will be an increase in litigation against mid-sized and smaller plans.
BrightScope: Moving to a discussion of providers. Do you believe that providers are ready for the new 2009 Schedule C regulations and disclosure of indirect compensation?
Fred Reish: Some are and some arenâ€™t. Large plan providers have been working on it for a year or more and should be in relatively good shape. I know that because I have worked with three major providers to help get them into compliance. But I donâ€™t know how the independent recordkeepers are doing. Some may be behind the curb. I am also concerned about service providers who receive indirect compensation, for example, broker-dealers. My sense is that many broker-dealers are not prepared to report the compensation of their advisers to their Schedule C plan sponsors. That is a significant issue.
BrightScope: What feedback have you received from providers about the content of HR2989?
Fred Reish: HR 2989, the so-called Miller bill, covers three areas that will impact 401(k) plans and their providers. The conflicted investment advice provisions of that bill are highly controversial and would negatively impact almost everyone other than independent RIAs. The other two provisions–disclosures to plan sponsors and disclosures to participants–are not particularly controversial, although there is not universal agreement on some of the details. The lack of major controversial issues is partially due to the fact that the DOL has been working on similar regulations for over a year. In fact, we are more likely to get regulations within the next six months than we are to get legislation. Either way, there will be significant increases in disclosures to plan sponsors and participants. In my opinion, those changes will be disruptive in the short term (e.g., for the next two to three years) but will be beneficial in the long term.
BrightScope: What is your take on the new administrationâ€™s proposals to harmonize the regulation of broker-dealers and registered investment advisers?
Fred Reish: In this context, the word â€œharmonizeâ€ is being used to mean that the standard of care for broker-dealers and RIAs will be the same where personalized advice is being given to retail investors. As a result, there are at least three interpretations. Those are: the new standard will be similar to the fiduciary standard for RIAs; or it will be similar to the suitability standard for broker-dealers; or it will be something in between. If the change means that the fiduciary standard will be watered down for RIAs, then I donâ€™t support it. Also, it makes sense for both broker-dealers and RIAs to have the same standard where they provide substantially the same services. Having said that, I think that, whatever the changes are, they will improve the marketplace, particularly with regard to conflicts of interest and putting the clientsâ€™ interests first.
BrightScope: What advice would you give to a plan sponsor in the face of the changing regulatory climate?
Fred Reish: Three recommendations: Work with an adviser who focuses on 401(k) plans; get fiduciary training from a specialized lawyer or consultant who regularly provides that service; and monitor and benchmark the plan investments, services and costs at least once a year. The law does not require that employers be experts about retirement plans, investments, revenue sharing, and so on. However, if they lack the knowledge, it does require that employers work with experts. Remember, that we are talking about peopleâ€™s retirement benefits, not just 401(k) services and investments. This is an important policy issue for our country and, as a result, the performance of plan sponsors will be scrutinized.
Interview Disclaimer: Fred Reish’s opinions are his own and do not necessarily reflect the thoughts or opinions of BrightScope. Inc.