Industry experts expect a more restrictive investment advice proposal later this year now that the Labor Department has killed a Bush administration regulation on advice to DC plan participants.
The rule, floated in the last days of the Bush administration, would have allowed employees of financial firms that sell investments to provide direct advice to defined contribution plan participants. But one of the first acts of the Obama administration put all last-minute Bush administration regulations on hold.
While it's unclear what the new investment advice proposal will say, many experts agree that the Labor Department will work with Congress to find a way for plan participants to receive objective investment advice. As part of that process, Phyllis Borzi, assistant secretary of the Labor Department and head of the Employee Benefits Security Administration, will likely solicit wide-ranging opinions to re-examine three core topics:
• Should the “fee leveling,” condition — which would permit an employee of a financial services firm to offer investment advice directly to DC plan participants if his compensation doesn't vary based on the investment recommendation — be extended to that adviser's employer, as well as any affiliate of that employer? This effectively would prevent money managers from offering advice if they recommend their own products.
• Should new legislation support or invalidate the Department of Labor's 2001 SunAmerica advisory opinion, which allows a DC plan's service provider to offer advice to plan participants through an affiliated adviser using an independently developed computer model?
• Should “off-model” advice be permitted? In other words, can a mutual fund or investment management company design its own computer software to deliver advice, as long as the model is certified as unbiased by an independent third party.
Then again, some industry watchers claim Ms. Borzi, who is well respected for her creativity and smarts, might come up with something completely new. The EBSA is expected to release new proposals on Nov. 18 — the date the Bush investment advice rules would have taken effect after two delays.
Department of Labor spokeswoman Gloria Della did not return two calls seeking comment. Ms. Borzi was traveling and was not available for comment.