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December 04, 2006 at 03:54 PM
Federal officials are studying a new law that could let investment advisors collect different levels of compensation based on the products that retirement plan members select.
The Employee Benefits Security Administration, an arm of the U.S. Department of Labor, has put out requests for information about how it should go about implementing provisions of the new federal Pension Protection Act that will make it easier for 401(k) plans and other retirement plans to supply investment advice.
EBSA officials are asking what kinds of investment advice computer models exist today, what kinds of models could exist, and how to handle matters such as fee disclosure and determining whether a model meets PPA requirements.
“What economic costs and benefits are associated with the use of the computer model/program for providing investment advice, including changes in investment performance and in retirement wealth due to the provision of such advice?” EBSA officials ask in one of the requests for information, which appear today in the Federal Register. “What are the indirect costs and benefits, such as impact on markets for financial services, including investment advice services, and impact on financial markets, including demand for and pricing of securities?”
One of the requests for information applies specifically to individual retirement accounts, and the other to 401(k) plans and other defined contribution retirement plans.
Comments are due Jan. 30, 2007.
EBSA officials are interested in investment advice computer models because the PPA lets advisors offer plan members advice under 2 conditions: either if the advisors’ compensation does not depend on either the initial amount of assets or on the investment options that the plan members choose, or if the advice program uses a “computer model” that meets PPA requirements.
If the Labor Department decides that a financial services company is using an investment advice computer model that meets PPA requirements, the advisor can collect levels of compensation that depend on the investment options that plan participants select.
