S&P, Stressing Independence, Looking for DoL Nod

May 10, 2000 (PLANSPONSOR.com) - Standard&Poor's expects to hear soon whether the Department of Labor grants it a Prohibited Transaction Exemption (PTE) for its retirement investment advice software.

The company’s Retirement Services division recently issued a press release about the PTE filing that actually dated back to early last year. The filing for its S&P 401(k) Advisor product makes S&P a standout in the burgeoning 401(k) advice market, since its competitors have so far not filed for a PTE.

S&P told PLANSPONSOR.com the PTE was requested to provide assurance of independence and objectivity to plan sponsors and their participants who use S&P’s service.


“Our software looks at all the investments available to a particular individual, steering them to various ones based on their particular circumstance,” explained Ken Ennis, S&P Retirement Service’s Vice President of Market Development. “S&P receives no fees, commissions or rebates from the funds we suggest. But because we work closely with the plan providers, and the bulk of their income comes from such investments, we talked to the Department of Labor and decided to go through the scrutiny of a PTE.”

S&P works with plan providers like Met Life and Fidelity to electronically access an individual participant’s information, then crafts personal advice about asset allocation.  The participant then can choose to click from his or her computer screen to implement the investment recommendations.

S&P does not manage money or act as a money manager, but it does form contractual relationships with plan providers to access individual records. There was concern about whether such investment recommendations from a third party might constitute transactions involving assets of a plan. Such transactions are prohibited under ERISA.


To date, most advice/education providers have eschewed pursuing a PTE, typically  because:

  • they do not manage money, and thus have no “incentive” to recommend one
    fund over another,
  • they don’t receive higher fees for investment in one fund type versus another (equity funds typically charge more than money market, or fixed income investments, for example), or
  • they don’t offer “advice” as defined in the regulations.

Several years ago, Trust Company of the West (TCW) received a PTE, based on its compensation program that essentially levelled its revenue collection regardless of fund choice, and a program that was based on recommendations from an independent advisory source.

Rapid evolution

S&P’s Ennis noted the rapid evolution of the investment advice market. He suggested that getting a PTE eventually might become a requirement for significant players.

“The investment advice industry provides a tremendous opportunity for Standard & Poor’s, because we are known as being independent and objective,” reflected Ennis. “There’s lots more to come from us in terms of products and alliances, for the domestic market as well as Europe and Asia.”

– Ann Bidou       editors@plansponsor.com