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Where Do you Go for Financial Advice?
The new regulation implements an exemption that Congress enacted as part of the Pension Protection Act of 2006 (PPA) to improve participant access to fiduciary investment advice, which contains certain safeguards and conditions to prevent investment advisers from providing biased advice that is not in a participant’s best interest. To qualify for the exemption in the final regulation, investment advice must be given through the use of a computer model that is certified as unbiased by an independent expert or through an adviser compensated on a “level-fee” basis, meaning that the fees do not vary based on investments selected. Both types of arrangements must also satisfy several other conditions, including the disclosure of the adviser’s fees and an annual audit of the arrangement for compliance with the regulation. “Given the rise in participation in 401(k)-type plans and IRAs, the retirement security of millions of America’s workers increasingly depends on their investment decisions,” said Phyllis Borzi, EBSA Assistant Secretary. “This rule will make high-quality fiduciary investment advice more accessible, while providing important safeguards to minimize potential conflicts of interest.”On a conference call with the press, Borzi explained that the auditor must be independent from the service provider, but that EBSA did not specify all the criteria for who the auditor should be. Their role will not be to decide the investment policy of a plan (getting into the “active versus passive” debate), but solely to determine if the investment model is unbiased; does it match up with generally accepted investment principles, she said.
To qualify for the exemption in the final regulation, investment advice must be given through the use of a computer model that is certified as unbiased by an independent expert or through an adviser compensated on a “level-fee” basis, meaning that the fees do not vary based on investments selected. Both types of arrangements must also satisfy several other conditions, including the disclosure of the adviser’s fees and an annual audit of the arrangement for compliance with the regulation.
“Given the rise in participation in 401(k)-type plans and IRAs, the retirement security of millions of America’s workers increasingly depends on their investment decisions,” said Phyllis Borzi, EBSA Assistant Secretary. “This rule will make high-quality fiduciary investment advice more accessible, while providing important safeguards to minimize potential conflicts of interest.”
On a conference call with the press, Borzi explained that the auditor must be independent from the service provider, but that EBSA did not specify all the criteria for who the auditor should be. Their role will not be to decide the investment policy of a plan (getting into the “active versus passive” debate), but solely to determine if the investment model is unbiased; does it match up with generally accepted investment principles, she said.