The Department of Labor’s Employee Benefits Security Administration (EBSA) released on Monday its long awaited final regulation on investment advice, which stipulates that service providers can also provide investment advice if they meet two criteria: under a level fee basis or via a computer model.
“Given the rise in participation in 401(k)-type plans and IRAs, the retirement security of millions of America’s workers increasingly depends on their investment decisions,” said Phyllis Borzi, EBSA’s Assistant Secretary. “This rule will make high-quality fiduciary investment advice more accessible, while providing important safeguards to minimize potential conflicts of interest.”
The DOL’s investment advice rule—which Borzi made clear is separate from and does not affect the DOL’s reproposed rule on the definition of fiduciary investment advice—was cleared by the Office of Management and Budget (OMB) on Oct. 4.
Borzi (left) said during a press briefing Monday that the investment advice rule is projected to reduce investment mistakes made by retirement plan participants by $7 billion to $18 billion annually. She added that she hopes that by the rule’s Dec. 27 effective date those ”employers who have been reluctant to provide investment advice as a service will move forward” and do so. “Participants are always asking for individual advice; they need it.”
The regulation implements a prohibited transaction exemption under an amendment to the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC) that is part of the Pension Protection Act (PPA) of 2006.
However, Borzi explained during the press briefing that the final investment advice rule is a “supplement” to DOL’s fiduciary rule. As the fiduciary rule will identify “the class of people” who are fiduciaries under ERISA, the investment advice rule “assists fiduciaries in making sure they are providing quality, unbiased investment advice” to participants in 401(k)s and in the IRA marketplace, Borzi said.