What are 408g Audits?408g audits differ greatly from all other audits (such as financial audits, FINRA audits,
401(k) audits, etc.) in purpose, nature and scope.

The purpose of 408g audit is to establish that a fiduciary adviser is in compliance with ERISA section 408(g) (part 2550.408g of Title 29 of the Code of Federal Regulations).

What are the Requirements of a 408g Audit?Fiduciary Advisers are required to submit to an annual audit that consists of the assessments outlined below and require compliance with the Department of Labor requirements as described in the “Adviser Selection & Monitoring Guidelines”. These audit guidelines are only applicable when preceded by satisfactory adviser selection and monitoring processes.

Assessments Required for Adviser Audit:

1) RECORDS RETENTION: Adviser must show that adequate records are maintained per PPA.

2) LEVEL COMPENSATION: Adviser must disclose sources and amounts of compensation to establish that it was not derived from advice given.

3) RECOMMENDATIONS UNBIASED: Records are examined to determine that adviser recommendations are in line with investment mix of benchmark advisers.

4) DISCLOSURES MADE: A representative sample of participants who use the adviser are asked if they received required disclosures.

5) COMPENSATION IS REASONABLE: Compensation level of adviser is compared on a per participant basis to benchmark advisers.

Who performs 408g Audits?  Subsection 408(g)(5) requires that the auditor be independent and be able to demonstrate expertise and proficiency in ERISA and the ability to conduct the audit in writing. An auditor is considered to be independent if he has no material contractual relationship, is not related to the fiduciary adviser or to any person providing investment options under the plan. Consequently, affiliated companies may not audit each other nor can a Fiduciary Adviser use an auditor over which he has control.

How is the Audit performed? The Dalbar audit consists of the following steps:

• Fiduciary Adviser initiates the audit through a disclosure questionnaire that is reviewed for compliance with 408(g).
• After review and acceptance of the disclosure questionnaire Dalbar initiates a request for documents, including eligible investment advice arrangements (EIAA), disclosure documents, tools used in advice delivery, records relating to advice delivery and complete list of plans and participants receiving investment advice.
• Documents are examined upon receipt for compliance with 408(g) using the auditor’s checklist and compliance tested by contacting a sample of plans and participants.
• Results are analyzed and two documents are produced: the 408g Audit Report and the Management Letter. (Samples are available)
  
  
  • Audit Report contains the findings that are reviewed by the fiduciary adviser and amended if necessary then delivered to adviser and plan sponsors.
  • Management Letter contains observations and recommendations and is delivered only to the fiduciary adviser.
• Both documents are reviewed with the fiduciary adviser after which the 408g Audit Report is sent to all of plans with whom the fiduciary adviser has an EIAA.

What is the Cost of a 408g Audit?  Costs are based on the number of advisers and associates in a firm providing advice
and the complexity of the audit.

Fees range from $2,500 for a small independent adviser to $150,000 for a large phone center operation.