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January 31, 2007 at 04:22 PM
A financial services company that structures the arrangement carefully can sell fee-based advice to members of a retirement plan while an outside firm is selling account management services to the same participants.
Ivan Strasfeld, director of the Office of Exemption Determinations at the Employee Benefits Security Administration, comes to that conclusion in EBSA Advisory Opinion 2007-01A, which deals with Prohibited Transaction Exemption 84-14, a batch of guidance issued in 1984.
The Employee Retirement Income Security Act normally prohibits firms that advise 401(k) plans and other “individual account” retirement plans from engaging in many different types of transactions with other financial services companies that want to do business with the same plans.
In some circumstances, PTE 84-14 permits financial services companies to get around the ERISA restrictions by bringing in outside “qualified professional asset managers.”
Melanie Franco Nussdorf, a lawyer at Steptoe & Johnson L.L.P., Washington, wrote to EBSA to ask about a situation in which Financial Services Firm A has Subsidiary B sell fee-based investment advice to participants in self-directed individual account plans.
