The $7 trillion defined-contribution retirement plan market got a serious shot in the arm when Congress recently passed – and President Bush signed – the Pension Protection Act.
Under the new law, employers will be allowed to enroll employees in retirement plans automatically, which should attract huge asset flows. They also can hire so-called “fiduciary advisors” to provide investment advice to employees. Prior to PPA, employers could only provide limited investment education to employees.
The law also imposes a fiduciary standard on investment advisors working with employees. This may be an eye-opener to practitioners operating under a lesser standard. According to a new survey conducted by Fidelity Investments Institutional Services, nearly 90 percent of advisors said they planned on giving investment advice to employees. However, two-thirds of the 329 advisors polled didn’t understand the fiduciary responsibilities involved.
Obviously, serving as a fiduciary imposes an obligation to act in the best interest of employees and to avoid conflicts of interest.
What Your Peers Are Reading
The PPA only allows investment advice to be delivered through a computer-driven advice model and/or on a fee-neutral basis. The computer model must not be biased in favor of the investments offered by the advisor; must take into account all of the investments offered under the plan; must take into account the participant’s age, life expectancy, risk tolerance and other assets; must be certified by an independent investment expert; and applies generally accepted investment advice theories.