Written by Stephen Ostrofsky, CFP®
The pursuit of personalized investment advice can sometimes be difficult for many Florida Retirement System (FRS) Investment Plan and PBSO Deferred Compensation Plan investors. Self-Directed Brokerage Accounts (SDBAs) available in both of the above mentioned retirement plans has generally gone unnoticed by many PBSO deputy sheriffs and employees. In January 2014, the FRS announced a SDBA option for FRS Investment Plan investors to provide greater investment options, including fee-based investment advisory services. According to the FRS, “The Self-Directed Brokerage Account (SDBA) allows Investment Plan members to invest in thousands of different investments in addition to the Investment Plan’s primary investment funds.”
The following investment options are available through the Self-Directed Brokerage Account option:
- Stocks listed on a Securities Exchange Commission (SEC) regulated national exchange;
- Exchange-Traded Funds (except for leveraged Exchange-Traded Funds);
- Mutual funds (except for any of the Investment Plan’s primary investment funds); and
- Fixed income products.
The FRS warned, “The SDBA is for experienced investors who want the flexibility to invest in a variety of options beyond those available in the FRS Investment Plan’s primary investment funds. It is not suitable for all members.” While SDBAs provide greater investment choice, this might seem to compound the complexities of investing for retirement. However, with the assistance of a financial professional this greater investment flexibility can result retirement planning outcomes which are more consistent with your investment objectives and risk tolerances. SDBAs provide investors with access to investment advisory services which provide continuous and ongoing investment management. This advisory relationship is known as a fiduciary relationship, which governs and mandates that financial advisors place their client’s “best interests” first.
Employee Retirement Income Security Act of 1974 (ERISA) section 3(21) and 3(38), provides that a fiduciary is an advisor who provides investment advice for a fee with respect to any investments of a pension plan. A fiduciary duty is owed to each pension plan participant by the investment advisor under the ERISA rules; if they exercise any authority or control over the management of the pension plan assets in return for a management fee. As a fiduciary, the investment advisor is responsible to:
- Understand pension laws and plan provisions;
- Diversify assets based on specific risk/return profile of client;
- Prepare investment policy statement;
- Select money managers and document due diligence;
- Control and account for investment expenses;
- Monitor the activities of money managers; and
- Avoid conflicts of interest and prohibited transactions.
A financial advisor can provide personalized investment advisory services to retirement plan investors, through Self-Directed Brokerage Accounts. Investment Policy Statements can help determine the appropriate investment allocations for your retirement plan based on your risk tolerances and investment time horizon designed to reach your retirement goals and objectives.
