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Investors Capital partners with FDAS to proactively address 408(b)(2) fee disclosure requirements for advisors

4/17/2012 by Robert Foney

Independent broker/dealer takes lead, prepares advisors for new ERISA regulations ahead of July 1 deadline

Lynnfield, Mass. (February 16, 2012) — Investors Capital Corporation, the premier independent broker/dealer subsidiary of Investors Capital Holdings, Ltd. (NYSE Amex: ICH), is partnering with Fee Disclosure Advisory Services, LLC of Southington, Conn. (FDAS) to prepare its registered representatives for new qualified retirement plan regulations issued by the U.S. Department of Labor under section 408(b)(2) of ERISA that take effect on July 1, 2012. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for retirement and health benefit plans in private industry.

“Most broker/dealers are unaware of the exposure they have to conform to with these new regulations because this comes from ERISA, from the U.S. Department of Labor, not FINRA or the SEC,” said Michael Callahan, Principal of Fee Disclosure Advisory Services, LLC. “They are unclear on what 408(b)(2) is, its ramifications, and how long it will take get their advisors compliant. They have roughly two months before they are in violation. That’s not a lot of time.”

The new ERISA regulations require service providers of qualified retirement plans to provide plan sponsors and participants with fee disclosure statements indicating what services they are providing, if they are operating in a fiduciary status, and how much they are charging for those services. Not providing a fee disclosure statement means that any commissions paid on non-compliant retirement plans after July 1, 2012 constitutes a prohibited transaction.

To correct a prohibited transaction, the violator must refund any commissions paid (with earnings), notify the IRS, and pay a 15% excise tax. The commissions paid as well as earnings would then have to be reallocated to each individual plan participant and properly distributed across all of their investments. That, according to Callahan, would be a nightmare. “We want to avoid that like the plague,” he added.

“Our advisors have significant qualified retirement plan assets and needed a path to compliance with the new fee disclosure regulations,” said John Cataldo, Chief Compliance Officer for Investors Capital Corporation. “Working with FDAS, we now have the tools to assess our retirement plan assets and to ensure that our advisors will be able to comply with the effective date of July 1, 2012 for Section 408(b)(2) of ERISA.”

The first step in that compliance process was to perform a firm-wide audit to determine how many Investors Capital advisors sold retirement plans and how many accounts existed. The next step was to find out which carriers were being used. FDAS then worked with Investors Capital to develop a customized web application, utilizing cloud technology, that would allow Investors Capital advisors to input plan-level information to receive proper the fee disclosure documents.

Advisors enter specific information regarding the retirement plans they have, the fees they are charging, the services they are providing, and whether or not they are taking on fiduciary status. The application generates the disclosure documents, the advisor sends them to or delivers them to the client, obtains a client signature, and sends the forms back to the home office. Once that is done, the plan is in compliance with the new regulation.

One innovative project that FDAS is working on with Investors Capital is a proactive reminder notification ticketing CRM for advisors. For example, an advisor has a retirement plan and provides the following services: a semi-annual enrollment, a quarterly review of the plan investment options, an annual review of the investment policy statement, and a three-year review of the vendor. The FDAS CRM will send the advisor a ticket reminder of the upcoming enrollment meeting as well as other service appointments. When the meeting is finished, the advisor sends in that completed ticket. This provides the broker/dealer with an audit system to track the services being performed by their advisors.

“With our CRM, the broker/dealer knows that the fees being paid are reasonable for the services being rendered, and the services are actually being performed,” said Callahan. “The ticketing process is a great way to audit those activities.”

FDAS is also developing a flexible billing application for Investors Capital with PayPal. Investors Capital can choose to pay for the disclosure documents, the advisor can pay, or both parties can split the cost. Multiple pay arrangements can be developed and simultaneously maintained, all operated from PayPal online.

“We are expanding our governance to include an Advisory Council for Retirement Plans so we can help our representatives maintain and grow their businesses,” said Cataldo. “To that end, we are adding a recapture program and succession planning program, as well as other retirement plan products and services. FDAS has been instrumental in helping us set a positive course to expand and enhance the retirement plan business of our advisors.”

About Fee Disclosure Advisory Services, LLC:
Fee Disclosure Advisory Services, LLC develops administrative documentation, procedures, guidelines and standards for Financial Institutions to enable their Financial Advisors the ability to comply with Department of Labor Regulation 29 CFR 408(b)(2). The goal is to ensure that the Financial Institution and Financial Advisor are provided the procedures and support to comply with this Regulation without financial hardship or loss of business. The Principals of FDAS are Michael E. Callahan, mec@fdas-408b2.com and Michael R. Ingenito mri@fdas-408b2.com, (855)408-(b)(2)01. Please review our website for more information: www.fdas-408b2.com.

Certain statements contained in this press release that are not historical fact may be deemed to be forward-looking statements under federal securities laws. There are many factors that could cause our future actual results to differ materially from those suggested by or forecast in the forward-looking statements. Such factors include, but are not limited to, general economic conditions, interest rate fluctuations, regulatory changes affecting the financial services industry, competitive factors effecting demand for our services, availability of funding, and other risks including those identified in the Company’s Securities and Exchange Commission filings.

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