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ASPPA: What Is A "Generally Accepted Investment Theory"?

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The American Society of Pension Professionals and Actuaries has expressed concerns about government efforts to shape the investment advice that might be offered to retirement plan participants.

The U.S. Labor Department released draft regulations in March that would encourage investment advisors and broker-dealers who advise retirement plan participants to adhere to “generally accepted investment theories” when offering advice.

ASPPA, Arlington, Va., recently submitted comments that were developed with the help of two ASPPA affiliates — the Council of Independent 401(k) Recordkeepers and the National Association of Independent Retirement Plan Advisors.

“We are concerned that the new proposal seeks input into what are ‘generally accepted investment theories,’” Craig Hoffman, ASPPA general counsel, says in a statement. “We believe that in doing so, the DOL is going down a path that may unnecessarily interject government regulators into the role of investment advisor by dictating the parameters of what is acceptable.”

The job of deciding what advice is acceptable “is better left to trained and experienced professionals who apply their expertise either when giving investment advice or creating computer models,” Hoffman says.

The proposed regulations would protect plan participant advisors against liability in the event that investments perform poorly.

The protection would apply only if the advice were provided through a computer model certified as unbiased; or through an advisor compensated on a “level-fee” basis – in such a way that advisor compensation would not depend on the investments selected by the participant.

A computer model arrangement would qualify if it were based on “generally accepted investment theories.”

The theories would have factor in historic risk and return data for different investments over defined periods of time; plus investment management fees and other fees and expenses, officials say.

“Rather than explicitly or implicitly endorsing a particular theory or methodology, ASPPA, CIKR and NAIRPA would instead like to encourage the DOL to continue to hold up a set of core fiduciary values,” Hoffman says. “Those values would include the need for portfolio diversification, investing for the long term, the payment of only reasonable fees for investment services and the need to keep potential conflicts of interest with respect to the advice given to a minimum. While particular investment strategies and products come and go, these core values remain the same and provide benchmarks against which all theories, styles and methodologies should be measured.”