Savita Iyer’s interpretation of portions of the Pension Protection Act (PPA) in the article on your Web site, “DOL Requires More Due Diligence for 401(k) Advisors” made for interesting reading, but I believe that interpretation is flawed. While the PPA can be complicated, it seems that the greatest confusion is over the new role of a fiduciary advisor. I have not read any section of the PPA that indicates “any advisor to a 401(k) plan is a ‘fiduciary advisor,’” as Iyer stated. Nor have I read that any advisor to a 401(k) plan would be subject to an “annual audit by the DOL.”
In the past, the majority of brokers and advisors that worked with participant-directed plans were precluded from giving advice to participants by a DOL-prohibited transaction. My interpretation, recently confirmed by a prominent ERISA attorney, is that the investment advice section of the PPA specifically addresses the aforementioned brokers and advisors, providing them with an approved way to give participants advice. This role is identified in the PPA as a “fiduciary advisor” under an “eligible advice arrangement.”
From reading the PPA, only fiduciary advisors under an eligible advice arrangement will be required to have a third-party audit of their procedures. This audit is one of several requirements that a sponsor must meet to allow the advisor to provide advice and to be provided safe harbor from any liability as a result of the advice they provide.
The Buckingham Family of Financial Services, an independent fee-only registered investment advisor firm, has been in a position to give advice to participants prior to the PPA. Its compensation is equal across all investment options and it is not compensated by any fund company or product. Therefore, the prohibited transaction has not kept Buckingham from giving specific advice to participants. As confirmed by the same ERISA attorney, this section of the PPA does not apply to independent firms such as Buckingham.
Furthermore, many advisors in the 401(k) marketplace serve as advisors to plan sponsors and merely educate or provide guidance to participants. In that role, an advisor can certainly be a fiduciary to the plan, but would by no means be subject to an annual audit.
Joe Goldberg, AIF, CRPS
Director of Retirement Plan Services
Buckingham Asset Management
St. Louis, Missouri