APRIL 2010 Newsletter
Labor Dept.'s 401(k) proposal could rock pension advice business
The Labor Department today released proposed regulations that prohibit financial advisers giving advice to 401(k) plans, or their employer or the employer's affiliates, from receiving extra compensation because the plan sponsors bought a product recommended by the adviser.
“They can't take advantage of the exemption if anyone in that chain gets compensated [from the advice provided,]" Assistant Labor Secretary Phyllis Borzi said today in a conference call discussing the proposed rules.
The proposed regulations will make it more difficult for advisers affiliated with broker-dealers and insurance companies to provide advice to plan participants, industry observers said. The rules also may pose huge challenges for actively managed funds in the retirement space.
Many advisers had hoped that affiliates of the adviser's employer would be exempt from the rules. “We are disappointed the Department of Labor decided to move in this direction after having withdrawn the previous final regulations and class exemption,” Elizabeth Varley, managing director of government affairs of the Securities Industry and Financial Markets Association, said in a statement.
regulation, if approved, will do little to expand American's
access to investment advice.”
The proposed rules
also allow for the use of independent computer modeling for
advice. The factors the model can take into account, however,
caused some observers to wonder if it would create an uneven
playing field in favor of index funds.
“If you aren't using historical performance, you are removing one of the primary justifications for fees for actively managed funds,” said Bradford P. Campbell, an attorney at Schiff Hardin LLP, who used to work at the Labor Department's Employee Benefits Security Administration.
Observers predict that the fund industry will weigh in heavily on this issue during the comment period since it could have huge effects on actively managed funds.
“It means that actively managed funds in the retirement marketplace would very much be in question and could lose market share,” said Ryan Alfred, co-founder and president of BrightScope Inc., which rates 401(k) plans.
When asked about
this issue on the conference call today, Ms. Borzi said she
welcomed comment on this question of historical performance.
“There is a difference in opinion as to what extent historical
returns are a predictor of future performance,” she said. “If
concerns with how we have structured the regulation and want to
address some of the questions, we urge everyone to participate
in the discussion.”
Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.
This page was last reviewed and/or updated on Friday, July 03, 2015 05:21 PM