Compliance
A proposal is written as a sales document and read, eventually, as a record. Most are built entirely for the first job.
A proposal is written as a sales document. It is read, eventually, as a record.
Somewhere between those two readings is every examination, every arbitration, and every uncomfortable conversation that starts with a client asking why they are in this and not something else. The document that wins the relationship is the document that has to defend it, and most proposals are built entirely for the first job.
This gets conflated constantly, including by people selling compliance software, so it is worth being precise.
Regulation Best Interest governs recommendations made by broker-dealers and their registered representatives. If your firm is a standalone registered investment adviser, Reg BI is not your standard.
The Advisers Act fiduciary duty is. The SEC set out what it means in its 2019 interpretation of the standard of conduct for investment advisers: a duty of care and a duty of loyalty, which together require a reasonable belief that the advice given is in the client's best interest, and which explicitly make cost a factor an adviser must consider.
Dual registrants live under both, applied by capacity, which is why the distinction gets lost in firms that do both and why the file has to be clear about which hat was on.
The standards converge on the same practical requirement, which is why the confusion mostly does not hurt anyone: have a reasonable basis, consider cost, disclose conflicts, and be able to show your work. It is the last one that most proposals fail.
Open a proposal from any major platform and you will find the allocation, the projection, the holdings, a benchmark comparison and a risk number. All of it describes what is being recommended.
Very few contain the why in a form anyone could use later: a plain-language statement of why this strategy fits this client's goals, this client's risk profile, and this client's cost tolerance.
And almost none contain the harder half — the alternatives that were considered and not chosen, including at least one that was cheaper or simpler, with the reason.
Naming a lower-cost alternative in your own proposal feels like arguing against yourself. It is the single most common objection to documenting this properly, and it is backwards.
The client is going to encounter the cheaper option regardless. From a competitor, from a brother-in-law with a spreadsheet, from an article. The only variable is whether they first heard it from you, with your reasoning attached, or from someone else, with theirs.
An advisor who writes we considered a three-fund indexed portfolio at roughly a third of the cost, and did not recommend it because of the concentrated employer position that needs to be unwound over six years without triggering a bracket change has done two things at once. They have satisfied the care obligation, and they have made the fee defensible in a way no fee schedule ever will.
The advisor who omits it has a document that says, in effect, here is what we sold you.
When a recommendation moves money out of a workplace retirement plan, a second regime attaches.
Advice to roll assets out of a plan is generally a prohibited transaction under ERISA and the Internal Revenue Code when the adviser is acting as a fiduciary and will be compensated on the resulting IRA. Firms rely on an exemption — in practice, Prohibited Transaction Exemption 2020-02 — and that exemption is conditional. One of its conditions is documentation.
Specifically, the Department of Labor expects the file to show that the recommendation considered the alternatives to rolling over, including leaving the assets in the plan, and to have weighed:
Worth adding a fifth, though it is not on the Department's list: protections differ. Assets in an ERISA plan carry creditor protection that an IRA replicates only partially, and how much depends on the client's state. If you have ever recommended a rollover for a physician, a business owner, or anyone in a profession that gets sued, that difference is material and belongs in the file.
A caution on the wider landscape: the Department's 2024 attempt to broaden who counts as a fiduciary in this context was stayed in litigation, and the ground has moved more than once. What has not moved is the practical posture almost every firm has adopted, which is to document rollovers as though the exemption's conditions apply. Your chief compliance officer owns that call, not us and not a vendor.
Most firms that do document a rollover comparison do it in a separate artifact. A form, a checklist, a template the advisor fills in afterward. Generated somewhere else, filed somewhere else.
Which means it is reconciled against the actual recommendation exactly never.
The fee comparison in the rollover form is entered by hand. The fee figure in the proposal is computed. When they disagree — and over a few hundred rollovers they will disagree — the firm has produced two documents about one decision that contradict each other, both signed, both in the file. That is materially worse than having documented nothing, because now there is a record of the inconsistency.
The basis for a recommendation has to be generated from the same data as the recommendation. Not attached to it. Generated from it.
On our platform, the best-interest basis and the alternatives-considered statement are required elements of a proposal rather than an attachment to one. A proposal that recommends moving assets out of a workplace plan carries the plan-versus-rollover comparison built from the same cost figures the rest of the document uses, and it is retained with the proposal in the client file.
Not because it makes a better sales document. It makes a slightly harder one. It makes a defensible record, and those are the same document whether anyone likes it or not.
We are not publishing how the comparison is assembled, where the plan-side terms come from, or how the record is retained and versioned.
The obligation is public, and you should hold us to it as readily as anyone. Pull your last ten proposals. Count how many state a best-interest basis. Count how many name an alternative that was not chosen. If a rollover is in there, count how many carry the comparison.
Most firms already know what that count is going to be. Running it anyway is the useful part.
Questions this did not answer? Ask them directly — that is what the twenty minutes is for.
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