BOSTON -- State Street Global Advisors executives believe they've found a way to give investment advice without getting a Labor Department exemption.
The SSgA Advice Account is designed as a separate investment option within any bundled defined contribution plan SSgA services.
That option provides customized investment advice, given by telephone by SSgA employees who are registered investment advisers. To participate, however, 401(k) participants must move all of their assets into that option.
An adviser will work with a participant to determine retirement goals and, using a PC-based desktop model, will devise an asset allocation to meet that employee's goals and risk tolerance.
The adviser then strategically allocates a participant's plan assets into five separate institutional accounts managed by SSgA: money market; indexed domestic bonds; domestic large-capitalization equity; domestic small-cap equity; and foreign equity.
Participants using the option also may choose to invest up to 50% of their assets in company stock, where applicable.
SSgA has structured its advice program to avoid needing a prohibited transaction exemption from the DOL, said Ray Martin, a principal in SSgA's Financial Planning Services unit.
SSgA officials believe an exemption is not needed because they have leveled the cost of the options available in the Advice Account. The expense ratio is the same for each option, Mr. Martin said, eliminating any question of SSgA's profiting from recommending any one of the separate accounts over another. SSgA is in line with a well-used precedent set by the DOL regarding the use of leveled fees to avoid self-dealing conflicts, he said.
A DOL spokeswoman said the agency had no comment on whether SSgA needs an exemption.
The performance measurement and attribution, style analysis, forecasting and modeling capabilities of the desktop toolkit at the investment adviser's fingertips is a powerful tool for the investment advice giver, said Mr. Martin.
He couldn't identify the company from which SSgA intends to license the style analysis and modeling software, because contracts have not yet been signed yet.
Development of the SSgA Advice Account has taken about 18 months. A focus group of SSgA's large plan sponsor clients persuaded the company that employers felt investment advice would be valuable for their employees. Large clients also made clear that personal contact with a human was an important feature to retain in the advice process, Mr. Martin said. SSgA also was convinced of the need for investment advice from participants' continued requests for investment advice in taped telephone conversations with customer service representatives, he said.
The first defined contribution plan client to offer the Advice Account to participants will start in January, followed by two more in April and July next year. Mr. Martin would not identify the clients.
The SSgA Advice Account is priced differently from the few existing investment advice programs now in use. Rather than charge participants or sponsors separately for the advice service, SSgA has built the cost into the identical expense ratio of the options in the account. Mr. Martin did not disclose the total expense ratios, but said because they are institutionally priced indexed separate accounts, the extra cost added for the advice service keeps the cost comparatively low.