The Pension Protection Act (PPA) signed into law last August is among the most important and comprehensive pieces of legislation in several decades, and a recent survey conducted by Fidelity Investments has shown that it has important implications for financial advisors, too.
The PPA centers around the 401(k) plan–undeniably the most important facet of retirement saving from here on–and as such, plan sponsors will increasingly be interested in how the Act will affect them and what decisions they need to make for retirement plans as a result of the Act, says Dave Liebrock, executive VP of Fidelity Investments Institutional Services in Boston. Because many plan sponsors do not have the knowledge or the time to explore the nuances of the PPA, they will rely more and more upon advisors to do the work for them, Liebrock says.
“Plan sponsors, for example, will want to know whether implementing automatic enrollment makes sense or not for their company, and this is the kind of work they will want advisors to do for them,” he says.
The Internet-based survey, conducted between September 18 and October 2, 2006, was taken by 329 financial advisors across the U.S. who sell 401(k) plans. Fidelity decided to conduct it because “we wanted to get an understanding of what advisors thought about the implications of the PPA for their business,” Liebrock says. “Not surprisingly, many think it will be positive and that their businesses will grow by between 10% and 40%” due to the new law.
However, while this may indeed be true, advisors need to understand fully what the PPA means and how it pertains to their business. “There is no doubt that the PPA is going to do a lot of good for many because it is designed to help people get into defined contribution plans,” Liebrock says, “but advisors actually stand to benefit the most because plan sponsors are going to need a lot of help, and so advisors really need to understand their fiduciary responsibilities and how these relate to the kind of advice they will be giving.”
Nearly nine in 10 (87%) advisors reported in the survey that with the new legislation in place, they plan to offer investment advice to 401(k) plan participants or IRA shareholders. Yet only one-third of these advisors believe they understand the fiduciary responsibilities related to offering advice. A number of advisors are embracing the advice provisions of the PPA, but many are probably not going to understand the associated liability and administrative requirements that go with offering advice, something that could have an impact upon their capacity and business model, Liebrock says.