Since the Department of Labor established its final rule on investment advice during the last days of the Bush administration, it has received numerous comments regarding the protection of workers from advisers who could steer clients toward products for which they receive compensation. At the Obama administration’s request, implementation of the final rule was delayed pending more consideration (see DoL Delays Investment Advice Rules Implementation ).
In his testimony Charles Jeszeck, Assistant Director, Education, Workforce and Income Security Issues, U.S. Government Accountability Office (GAO), presented a report of GAO study data on pension consultants registered as investment advisers that showed lower annual rates of return for those ongoing plans associated with consultants that had failed to disclose significant conflicts of interest.
In her testimony, Melanie Nussdorf, Partner, Steptoe & Johnson, LLP, speaking on behalf of the Securities Industry and Financial Markets Association (SIFMA) suggested that prior to passage of the Pension Protection Act, exemptions to the Employee Retirement Income Security Act that allowed for investment advice did not contemplate the various adviser compensation arrangements in existence today, and that they also discouraged the introduction of innovative products designed to address longevity, inflation and market risks. She contended that the comprehensive investment advice exemption in the PPA would open the door for more broad investment advice programs.
Nussdorf said the class exemption in the PPA and the DoL’s final rule address “how off-model advice can be provided with sufficient safeguards, including contemporaneous recordkeeping, advance disclosure, and audit requirements that will protect participants and beneficiaries and create a record for ensuring that the requirements of the exemption and ERISA’s fiduciary responsibility provisions have been satisfied. “
Links to testimony provided at the hearing, including the GAO report, can be found here .