HELP Committee Addresses Investment Advice Regulations

At a recent House hearing, speakers affirmed the need for independent financial advice.

In his opening remarks before testimony during a hearing before the U.S. House Committee on Health, Education, Labor, and Pensions (HELP), Representative Robert Andrews (D-New Jersey) said he believes in the value of providing investment advice to retirement plan participants that is free from conflict.

The Department of Labor established its final rule about investment advice during the last days of the George W. Bush Administration, but, at the request of the new Administration, decided to propose delaying implementation while seeking more comments. The DoL received numerous comments regarding the protection of workers from advisers who could steer clients toward products for which they receive compensation (see “Controversy Brews over Investment Advice Regs). Last week the DoL decided to delay implementation of the rule, pending more consideration (see “Investment Advice Rule Implementation Delayed).

In his testimony, Charles Jeszeck, assistant director, Education, Workforce and Income Security Issues at the U.S. Government Accountability Office (GAO), presented a report of a GAO study that suggests a link between inadequate disclosure and lower investment returns at defined benefit plans. The research found lower rates of return for ongoing plans associated with consultants that had failed to disclose significant conflicts of interest.

Speaking on behalf of the Securities Industry and Financial Markets Association (SIFMA), Melanie Nussdorf, partner at Steptoe & Johnson, defended the DoL final rule. “If the rules promulgated under the PPA are allowed to take effect, plan participants will have access to advice providers who offer advice on a wide variety of investments—in person or on the phone—in a cost-effective manner,’ she said in her testimony. “We think it is critical and beyond argument that we need to increase savings and encourage better investment decisions. We respectfully submit that professional investment advice is a critical step, and unless the ranks of fiduciary advisers multiplies greatly, it is unlikely that there will be any increase in the provision of advice to participants and IRA owners.’

She added that the rule requires that participants are told that they are always free to seek advice on their own from an adviser whose company does not sponsor investment products.

Nussdorf also said the reason advisers haven’t completely filled the gap for participant advice is because of compensation. “If professional fiduciary advice is to become the norm, we need to encourage those that are capable, trained, and regulated to step forward and give this advice in a manner that makes economic sense for their employers.’

Links to testimonies provided at the hearing and the GAO report can be found here.