DOL Finalizes Investment Advice Rule for Retirement Plans

As DOL explains, the prohibited transaction rules in ERISA and the IRC generally prevent a fiduciary investment advisor from recommending plan investment options if the advisor receives additional fees from the investment providers. “Although these rules protect participants from conflicts of interest,” DOL says, “ERISA provides exemptions from the rules in appropriate circumstances and permits the department to grant exemptions that have participant-protective conditions.”

The new investment advice regulation implements an exemption that Congress enacted as part of the PPA to improve participant access to fiduciary investment advice, which contains certain safeguards and conditions to prevent investment advisors from providing biased advice that is not in a participant’s best interest.

Brad Campbell, former head of EBSA who’s now counsel with the law firm Schiff Hardin in Washington, told AdvisorOne on Monday that while the goal of the final rule is to “allow a service provider who has some prohibited relationship with the investment options the participant will be choosing to provide advice without a conflict,” he believes that the rule is too “narrow.” 

Says Campbell: “You can already provide a form of computer model-based advice under prior DOL advisory opinion, and you can already do a form of fee leveling. Yes, the new regulation adds some new variations on these themes, but they do not materially change the likely take-up rates from current law. In other words, there is not a large group of advisors who have been anxiously awaiting these new variations just so they can provide services they are not already providing.”

Campbell sees the final rule as “another lost opportunity to make meaningful reforms that would facilitate the availability of face-to-face investment advice.”

To qualify for the exemption in the final regulation, DOL says that “investment advice must be given through the use of a computer model that is certified as unbiased by an independent expert or through an advisor compensated on a ‘level-fee’ basis, meaning that the fees do not vary based on investments selected.” Both types of arrangements, DOL says, “must also satisfy several other conditions, including the disclosure of the advisor’s fees and an annual audit of the arrangement for compliance with the regulation.”