EBSA Clarifies Investment Advice Regulations
The components of the proposals clarify the Pension Protection Act (PPA) exemption for investment advice, according to the DoL. The PPA had added an exemption that allowed participants of 401(k) plans and IRAs to receive investment advice by using an unbiased computer model or an adviser compensated on a “level-fee’ basis. After receiving comments since December 2006 about clarifying computer models and developing the model for the disclosure of adviser fees, the DoL released Thursday’s proposals.
In a telephone press conference Thursday, Bradford P. Campbell, assistant secretary of labor for Employee Benefits Security Administration (EBSA) at the DoL, said this is part of the continued efforts to protect participants from receiving investment advice from individuals with a vested interest in products.
Campbell said the proposal could this will open the window for more providers to offer investment advice—giving plans who can only afford a one-stop-shop service to be able to receive investment advice for their participants. The DoL expects advice available to participants to increase from 20% of participants to 60% of the participants.
“One of the most important elements of this proposal is we are facilitating one-on-one investment advice,’ Campbell said. “People find advice most valuable when it’s being delivered face to face with another person, and these regulations facilitate that.’
Proposal Components
The proposed regulation gives more guidance on the requirements of the PPA exemption. The DoL said the three components of the proposal are:
- general guidance on the exemption requirements, including computer model certification
- a non-mandatory model form that advisers can use to satisfy the fee disclosure requirement
- a class exemption that permits advisers to provide individualized advice to a worker after giving advice generated by use of a computer model.
The proposal outlines advice requirements, requiring the adviser to obtain necessary information about the participant, such as age and financial situation. The participant must also receive full disclosure of the adviser’s fees, and whether the adviser has any financial interest in the advice or who the adviser is connected to. Also, the plan fiduciary must review the advice, and there will an annual audit by an independent auditor to ensure the plan is following the investment advice rules.
Separately, the department also released its determination relating to the feasibility of using computer models for providing investment advice to participants of IRAs, the agency said.
“These proposals would give workers greater access to investment advice so that they are better equipped to manage and monitor their 401(k) plans and Individual Retirement Accounts,’ said U.S. Secretary of Labor Elaine L. Chao, in a DoL release.
The proposed regulation would be effective 60 or 90 days after the publication is released, which Campbell expects to be sometime next year.
The DoL is now in a 45-day comment period accepting comments on the proposal. Written comments on the investment advice proposals should be addressed to the Office of Regulations and Interpretation, Employee Benefits Security Administration, Room N-5665, U. S. Department of Labor, 200 Constitution Ave., NW, Washington, D.C. 20210, Attn: Investment Advice Regulations, or by email to e-ori@dol.gov, or through the federal e-rulemaking portal at www.regulations.gov. Earlier comments on the topic can be viewed here.
Last month, EBSA released disclosure requirements for plan sponsors to participants (see EBSA Issues New Participant Disclosure Regulations), and in December EBSA issued disclosure requirements for providers to plan fiduciaries (see EBSA Releases Proposed Revisions to Provider Fee Disclosures).