The Employee Benefits Security Administration says different compensation rules apply to retirement plan members’ investment advisors and the advisors’ financial services affiliates.
Robert Doyle, EBSA’s director of regulations and interpretations, comes to that conclusion in a batch of guidance on the new statutory exemption in the Pension Protection Act of 2006 for people and companies who provide investment advice for members of employer-sponsored retirement plans.
The PPA provision establishes rules that advisors can follow to get paid for giving plan members investment advice.
Advisors may be able to collect fees or commissions based on the investment options that plan members select if approved computer models generate the advice.
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If human counselors supply the advice, then an advisory firm cannot tie its compensation to the investment options selected, Doyle writes in the guidance, EBSA Field Assistance Bulletin Number 2007-01.
Employers or other fiduciaries that prudently select and monitor an investment advice provider will not be liable for the provider’s advice, and they do not have to monitor the specific investment advice that the provider gives to specific advice recipients, Doyle writes.
But employers should use an objective process to assess an advice provider’s qualifications, fees and quality of services, and they should check to see whether the provider follows generally accepted investment theories, Doyle writes.