American Funds SIMPLE Plus Plan

Recently, American Funds introduced an innovation to their SIMPLE IRA platform: the SIMPLE Plus plan.  This new platform allows a SIMPLE plan to operate in a fashion similar to a 401k regarding enrollment and education of participants and direction from the sponsor.  ESI’s paperwork requirements for these plans are similar to the requirements for a 401k plan, versus a more traditional SIMPLE IRA.

The American Funds SIMPLE Plus plan may utilize commission (R3) or advisory (R5) share classes.  The choice of share class is selected by the plan sponsor at the time the plan is initiated.  All plan participants will utilize the same share class.  Please note that the different share classes have different licensing and documentation requirements.  To offer commission (R3) shares, a registered representative must have either a Series 6 or Series 7 license and be registered in the appropriate jurisdiction.  To offer advisory (R5) shares, the advisor must be an Investment Adviser Representative (IAR).

DOCUMENTATION

The documentation required for establishing an American Funds SIMPLE Plus plan includes:

• Entity Profile.   
  • Page 1 and 2 should include all individuals who are authorized to make decisions for the plan.  These individuals will also be included on the Trustee Certification of Investment Powers, and they should sign all account set up documentation. 
  • Page 4, Annual Contribution: estimate the total of how much the sponsor will be contributing each year to the participants’ accounts. 
  • Page 4, Assets:  use plan assets, not company assets.  For a new plan, you should enter $0.  For an existing plan, provide an estimate of the total dollar amount of all participant accounts. 
• Trustee Certification of Investment Powers
• Customer agreement. 
  • The “account owner” should be the sponsor’s SIMPLE Plus plan.  For example: “ABC Corp. SIMPLE Plus plan”
  • Use the sponsor’s TIN
• Best Interest Supplemental Worksheet
• Mutual Fund Purchase Disclosure
  • Add a comment in the remarks section of the MFPD that explains the fee structure of the share class
• ERISA form: 
  • For R3 shares:  ES0626 Consulting Agreement for ERISA Governed Plans (Non-Advisory)
  • For R5 shares:  ES0721 Investment Advisory Agreement for ERISA Plans
• American funds plan level account set up “application.”  This includes everything the sponsor completes for American Funds.
• No documentation is required for the individual participants.

If other SIMPLE Plan vendors introduce similar SIMPLE IRA platforms in the future, they will be evaluated and approved on a case by case basis.  

QUESTIONS

If you have any questions about this requirement, please contact the Suitability Review Team at 800-344-7437.

CLICK HERE TO VIEW FIELD NOTICE 2021-08: American Funds SIMPLE Plus Plan

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Annual Form ADV Update

ESI Financial Advisors (“EFA” or “the Firm”) has updated its Forms ADV Part 2A (ES0408) ADV Part 2A – Appendix 1 (ES0408A), and ADV Part 3 (ES0717) disclosure brochures (collectively “the Brochures”), effective March 10, 2021.

In accordance with applicable regulations, EFA will send advisory clients an offer to request a complete copy of the ADV 2A and/or ADV 2A-Appendix 1, if they want, by contacting EFA Compliance.  The mailing will be completed no later than March 12, 2021. Click here to view a sample of the client letter.  There is no requirement for an annual offering of the ADV Part 3.  However, the most current version of that document (as well as the ADV 2A and ADV 2A-Appendix 1) is available on ESI’s public website.

FORM ADV PART 2A

The Form ADV 2A must be delivered to all advisory clients before or at the time of entering into an investment advisory agreement. This includes clients with accounts in one or more of the following programs:

• ESI Illuminations;
• EFA Financial Planning/Consulting Agreements;
• American Funds Retirement Plan Solutions
• AssetMark (adviser model);
• Morningstar;
• Saratoga Advantage Trust;
• SEI; and
• TD Ameritrade Plan Platform.

FORM ADV PART 2A-APPENDIX 1

The Form ADV 2A – Appendix 1 is specific to the Firm’s wrap program (i.e. ESI Directions) and must be delivered to all clients with accounts in the Directions program before or at the time of entering into an investment advisory agreement.

FORM ADV PART 3 (FORM CRS)

The Form ADV 3 (a.k.a. Form CRS) must be delivered to each retail investor (including prospective clients) before or at the time they enter into an investment advisory contract, as well as before or at the time you:

(i) open a new account different from their existing account(s),

(ii) recommend they roll over assets from a retirement account, or

(iii) recommend or provide a new investment advisory service or investment that does not necessarily involve the opening of a new account and would not be held in an existing account.

The Brochures describe the various products and services offered by EFA, and provide required disclosure of fees, disciplinary events, and conflicts of interest.  Note that delivery of a brochure is not required for accounts on which EFA acts in a solicitor’s capacity.

The updated versions of these forms will be available on the ESI Illuminations website and through the NLG website, via MerrillConnect. Effective March 10^th, please destroy and discontinue use of any previous versions of these disclosure documents, and only use the updated versions. 

QUESTIONS

If you have any questions regarding the Brochures, please contact ESI Compliance at 800-344-7437.

CLICK HERE TO VIEW FIELD NOTICE 2021-07: Annual Form ADV Update

TC120076(0321)1

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In June of 2020, ESI updated its Written Supervisory Procedures (WSPs) to accommodate heightened regulatory scrutiny due to comply with the requirements of Regulation Best Interest (“Reg BI”) regarding supervision of registered representatives who make an explicit hold recommendation.  Specifically, the amended WSPs state:

11.5.6 Hold Recommendations
Best interest obligations apply to recommendations to hold a security or securities or to continue to use an investment strategy, even if the RR did not recommend the original purchase. RRs should disclose and document that the hold recommendation is based on relevant factors known at the time of the recommendation only, and that continued monitoring or recommendations will not occur (if that is the case). A hold recommendation applies to broker-dealer products including, but not limited to, brokerage accounts, direct mutual funds, and variable insurance products. RR’s use the Firm’s Explicit Hold Recommendation Memoranda to document hold recommendations and submit into Docupace.

It should be noted that the Explicit Hold Recommendation Memoranda requirement only applies to broker dealer business, not advisory business.  Thus, Illuminations programs and directly held third-party managed advisory programs are exempt from this requirement.

The practical implication of this rule is that, if you advise a client to continue holding an investment in an existing broker dealer product (such as in a non-advisory brokerage account, direct mutual fund, or the subaccount of a variable annuity), you will need to document the discussion.  Discussion of a general nature about investment concepts do not need to be documented.

PROCESS
ESI has established a document and simplified workflow process to satisfy this regulatory requirement.  The Explicit Hold Recommendation Memoranda should be used to document these recommendations.  There are two ways to submit the form to ESI

• The form can be completed and signed by the registered representative on paper with pen.  The form must then be scanned into a work item with the request type of “explicit hold recommendation”.
• The form can be completed and signed electronically through Startingpoint in Docupace.  This will automatically load the form into the appropriate workflow and no further action is required by the registered representative. 

QUESTIONS
If you have any questions about this requirement, please contact the Suitability Review Team at 800-344-7437.

TC119935(0321)1

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