More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
The U.S. Department of Labor (DOL) announced August 20 two proposed rules under the Pension Protection Act (PPA) designed to make investment advice more accessible for millions of Americans in 401(k) type plans and individual retirement accounts (IRAs).
Brad Campbell, assistant secretary for DOL's Employee Benefits Security Administration (EBSA), told reporters on a conference call that as millions of people in defined contribution plans are making their own investment decisions for retirement, DOL has increasingly "seen the need" for participants and workers to have "access to quality, professional investment advice. That's something that Congress and the Administration have, on a bipartisan basis, said is a good thing."
The Pension Protection Act (PPA) amended the Employee Retirement Income Security Act (ERISA) by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice, the DOL explains in its release announcing the proposed rules. One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased, the other is through an advisor compensated on a "level-fee" basis, which means the advisor receives the same compensation regardless of the investment chosen by the participant. Whatever fees the advisor is to receive must also be disclosed.
In December 2006, DOL solicited public comments to determine what expertise and procedures may be needed to certify a computer model under the exemption, and to assist in developing a model form for the exemption's disclosure of advisor fees. During the conference call, Campbell said Congress had asked DOL to study whether "it's feasible to use computer modeling in the context of IRAs," since many IRAs allow participants to invest in almost any security or mutual fund. "We concluded that some IRAs were representing universes of options that could be modeled," he said.
According to DOL, the proposed regulation provides general guidance on the exemption's requirements, including computer model certification, and includes a non-mandatory model form that advisors may use to satisfy the exemption's fee disclosure requirement. In addition, DOL says that "to further the availability of quality, professional investment advice, the department is proposing a class exemption that permits advisors to provide individualized advice to a worker after giving advice generated by use of a computer model."
Comments on the proposals are due by October 6.