“The arm’s length principle (ALP) is the condition or the fact that the parties to a transaction are independent and on an equal footing. Such a transaction is known as an “arm’s-length transaction”.  It is used specifically in contract law to arrange an agreement that will stand up to legal scrutiny, even though the parties may have shared interests (e.g., employer–employee) or are too closely related to be seen as completely independent (e.g., the parties have familial ties).”

One known hazard that will continue to exist is the fact that the so-called independent advisory firm will continue to maintain a close and personal relationship with the service provider, leaving one to question whether or not the true “best interest” of the investor is being served.  There will exist on the investment advisory website  disclosures that few if anyone actually reads.  Fee “disclosures” will take on the form of  financial perks offered by companies like Principal Life which simply mask the hidden fees paid to the advisors to market certain products.

Today, LPL Financial is one of the largest advisory firms in the nation.  LPL is currently purchasing ownership of advisors from insurance companies.  I suspect Principal Life will soon be divesting their agents as well.  While LPL is essentially assuming fiduciary  responsibility of prohibited transactions, as an investor you must continue due diligence efforts to take charge of your investments.

Withdrawal Restrictions and insurance company separate accounts…Prohibited transactions

Over the past decade or longer, Principal Life has engaged in questionable tactics to take control of investor’s funds, and in some cases, literally stealing from those retirement accounts to protect the integrity of their own investment errors.  This practice will not change, and if the economy fractures, your retirement account will crumble as well.  If your funds are held in any insurance company separate account where the service provider can initiate a withdrawal restriction, ie. freeze the account, get your money out of that account as soon as possible.  Once that account is frozen, you lose control, and your money will be lost!

Ask your Plan Sponsor or employer to confirm in writing that none of the investments offered in your 401(k) plan can be frozen or have a withdrawal restriction.  If he does not understand the question, then demand a letter in writing from your service provider.  At this time, I understand that ALL of Principal’s separate accounts offered as 401(k) investments can have withdrawals delayed for up to 2 years at the sole discretion of Principal Life management!