The Problem with SEPs and Simples

On of the fallouts with the new fiduciary rule is how broker-dealers deal with SEP-IRAs and Simple-IRAs. Do broker-dealers treat them as IRAs or qualified plans because the Department of Labor (DOL) hasn’t been much help.

The problem here is many broker-dealers may not want to be in the fiduciary business in helping out IRA clients while they may want to continue helping out plan sponsors. Where I come from, I think ERISA would apply to any of these small plans when there are employer contributions made to employee accounts. I’m sure most plans are non-ERISA because most of these small plans are usually set up for the owners of the business and their spouses because there are no employees.

While I think I can delineate between which of these small plans should be treated as ERISA and which should be treated as IRA accounts, the nny think is that when these accounts were opened, most broker dealers probably didn’t track which plans covered employees and which only covered owners. Of course, they also didn’t track these plans when they added employees. So broker-dealers may have an issue in how to deal with these type of plans.

I think that many broker-dealers in a panic will claims all of these plans are IRA accounts and decide they no longer want to services these type of plans. That’s a tremendous amount of business to get rid of and it’s an opportunity for other advisors out there to try to target these type o clients and service them as small plans or try to convert these plans into 401(k) plans. It’s going to be a problem for broker-dealers and an opportunity for enterprising advisors.

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