While one industry trade group enthusiastically backed the DoL’s advice final rule issued in January (See DoL Finalizes Rules on Investment Advice ), other commentators blasted the regulation for not adequately protecting those in retirement plans from conflicted investment advice providers.
At the request of the White House (See White House Executive Order Snares Fee Disclosure, Advice Regs ), the DoL put off implementation of the regulation until May 22 and gave members of the public until March 6 to submit comments on the rule permitting the providing of advice to 401(k) participants and IRA investors under certain circumstances (See DoL Suggests Advice Rule Delay ).
The comment letters posted on a DoL Web site included:
The American Society of Pension Professionals & Actuaries (ASPPA) and the Council of Independent 401(k) Recordkeepers (CIKR)
“In particular, we have concerns that working Americans should not have their retirement assets exposed to conflicted investment advice where the adviser has a financial interest in what investment choices to recommend, regardless of what disclosure is being provided.
Although the Final Regulation provides that plan participants can always hire an independent investment adviser on their own, as a practical matter, most plan participants would be unlikely to take this additional step and would thus be a ‘captive’ audience. Even with the fiduciary adviser being subject to fee-leveling in the Class Exemption, there is no protection to ensure that investments for which the adviser’s employer has a financial interest are not favored over other plan investment options.”
The ASPPA letter is available here .
Attorney Marcia S. Wagner of Boston
“The regulations and exemption appear to be premised on a number of assumptions that are so questionable that it would be highly advisable to withdraw them and start with a clean slate. â€¦ I suggested that the allocations in target-date funds would be affected by the money manager’s interest in higher fees and profits. Consequently, I suggested EBSA should require use of independently derived algorithms for such allocations.”
The Wagner letter is available here .
Four Congressional lawmakers including
U.S. Representative George Miller (D-California)
and U.S. Senator Edward Kennedy (D-Massachusetts)
"We are deeply concerned that the Department's proposed participant investment advice regulation exceeds Congressional authorization and will have a devastating impact on participant and beneficiaries' retirement savings. â€¦(The regulation) would further endanger workers' retirement savings by permitting advisors to make investment recommendations that would benefit their own and their affiliates' interests. Though the proposed regulation provides a fee leveling requirement for advisors, it fails to prohibit advisors from recommending investment options that are more beneficial to their employer's affiliates."
The Congressional lawmakers's letter is available here .
Cynthia W Milstead
Senior ERISA Counsel
"The timing seems very poor to establish a set of regulations that will give investment advisers the opportunity for self-dealing."
"...every effort must be taken to protect participants from the possibility of self-dealing. Hewitt is not confident that regulations currently create effective controls to guard against abusive behavior by conflicted investment advisers."
The Milstead letter is available here .
Mary S. Podesta
Senior Counsel-Pension Regulation
Investment Company Institute
"The Final Rules thoughtfully implement the PPA provision in a manner that will encourage plans and providers to offer investment advice programs to assist participants and beneficiaries of ERISA plans and IRA holders in managing their accountsÂ—exactly the outcome Congress intended in adopting the provision. The need for investment advice programs is clear, particularly given the recent economic uncertainty and market turmoil. During recent months, as markets fell, participants have reached out in record numbers to their plan providers for assistance. Providers need to be able to respond and to develop new advice products to address market developments and participant needs."
The ICI letter is available here .
Stace A. Hilbrant
"The recent Bush Administration provisions that allow vendor/investment manager personnel to provide "investment advice" to participants investing in their fund offerings is very poor legislation, poorly researched and stands to destroy years of progress that has been made in the financial services industry in bringing advice/guidance to the average American worker.
Vendor personnel have vested interests in promoting their own funds, asset allocation products and services. Blatant financial conflicts of interest may be muted, understated or undisclosed. No amount of industry regulation will be able to eliminate the many different types of "conflicts of interest" that these arrangements contain and no rules or governing body will be able to assure compliance with any potential stop gap measures designed to "police" vendor personnel from promoting their own interests through "deemed object/independent" advice arrangements. "
The Hilbrant letter is available here .
All of the investment advice rule comment letters are available here .