These FABs, which essentially are designed to give DOL personnel in “the field” guidance on the interpretation of the law, provide incredibly valuable information for anyone who works with qualified retirement programs—and this one is no exception.
This particular FAB dealt with three issues:
- Did the investment advice provisions of the Pension Protection Act “invalidate or otherwise affect” prior DOL guidance on the subject?
- To what extent are the standards for selecting and monitoring a fiduciary adviser (as defined by the PPA) different from the standards applied to those who offer advice outside those provisions?
- For purposes of an “eligible investment advice arrangement” under the PPA, is an affiliate of a fiduciary adviser subject to the level-fee requirement?
The answers to the first two were relatively straightforward, IMHO. The FAB plainly states that the DOL sees nothing in the PPA’s investment advice provisions that invalidates, or in any way alters, prior guidance—including Interpretive Bulletin 96-1 (which set out the line between investment advice and education), Advisory Opinions 97-15A, 2001-09A (SunAmerica Advisory Opinion that said it was OK for money managers to offer advice on their funds, so long as the asset allocation was determined by an independent firm), and 2005-10A. These “continue to represent the views of the department, and may continue to be relied upon by the employee benefits community,” according to the DOL.
Similarly, the DOL stated that “the same fiduciary duties and responsibilities apply to the selection and monitoring of an investment adviser for participants and beneficiaries in a participant-directed individual account plan,” irrespective of whether the advice is provided by a fiduciary adviser under the PPA or not. That, by the way, apparently not only means that the plan sponsor is expected to be just as diligent in selecting and monitoring the advice provider, but also that the plan sponsor is not liable for the advice delivered to the individual, either under the PPA’s new provisions or existing guidance—a point that might be a surprise to some plan sponsors, who have worried about just that level of liability.
The last issue—fees, and how the restrictions of the PPA might be applied—will draw the interest of most advisers, certainly those who are affiliated with a firm that manages money. Here, it seems to me, the DOL also drew what attorneys are fond of calling a “bright line.” The FAB says that “Congress did not intend for the requirement that fees not vary depending on the basis of any investment options selected to extend to affiliates of the fiduciary adviser, unless, of course, the affiliate is also a provider of investment advice to a plan.” On the other hand, the FAB also noted that “when an individual acts as an employee, agent, or registered representative on behalf of an entity engaged to provide investment advice to a plan, that individual, as well as the entity, must be treated as the fiduciary adviser” under the PPA’s provisions.
What It Means
Ultimately, IMHO, the DOL has provided some very timely and important information on advice. It reinforces the reality that the PPA’s advice provisions represent an addition to current guidance, rather than a refutation or replacement. Significantly, it should assure plan sponsors that, regardless of their approach on offering advice, they are responsible for the adviser, not the advice. It should also put them on notice that they are fully accountable for the prudent selection and monitoring of the adviser—and it provides a sense of the applicable considerations for doing so.
What may remain problematic for some in the business of providing advice is how (and more significantly, if) the fee structures will work with their individual business models, and those of the organizations with which they are affiliated.
Still, it seems to me that things are clearer today than they were a week ago—and clarity is nearly always preferable to the alternative.