While we await, with varying degrees of anticipation, the latest pronouncements from Congress regarding how advice may be provided to plan participants by you (and me), let's begin with a look back.
Some advisors, myself included, have been providing advice, and will continue to do so until (or unless) pending legislation precludes that possibility since 2001. And the guidelines we follow are based not upon the Pension Protection Act of 2006 as we prefer to rely upon the historical guidance offered by the Department of Labor in their SunAmerica Opinion Letter (2001-09A).
Right now, and until legislation is written pertaining to the passage of the latest rules and regulations, guidelines govern the giving of advice to plan participants whether you are an independent investment advisor or a broker/insurance person.
If you are operating as an independent investment advisor who is not restricted by their relationship with a broker/dealer for example, you will (theoretically) be permitted to remain as an advisor to plan participants. And you will not (presumably) be required to enter into any arrangement with the plan sponsor known as an "eligible investment advice arrangement."
As an independent investment advisor working with plan participants, according to congressional opinion, you don't need to establish an eligible investment advice arrangement with your plan sponsor because you don't benefit (monetarily) from the advice you provide and therefore will not be engaging in a prohibited transaction. Even though you will be charging a fee for your participant advisory services.
(It should be noted that these latest rules and regulations have been awaiting enactment and codification since January 2009 and their final written form was scheduled to appear in May.)
Now, for those of you (us) working through a broker/dealer relationship must enter into an eligible investment advice arrangement with the plan sponsor with the intention of avoiding the potential conflicts that would exist (in the perception of Congress and the Department of Labor) absent such an arrangement.
This eligible investment advice arrangement was created in reaction to what is (was) considered conflicts of interest by the advisor (or entity) offering advice to the plan participant based upon a resultant increase in compensation to the advisor or entity.
So, if an advisor or entity is offering, under the proposed and still pending participant advice rule, direction to the plan participant, compensation received must be level, or based upon a computer model. No specific guidance is offered in the pending legislation (yet) as to what type of computer model is allowable beyond that the computer model must be independently certified and audited on an annual basis.
Now, even more confusing (if that's possible), is that entering into an advisory relationship for plan participants through the plan sponsor will have a considerable cost to the plan and/or its participants.
Additionally, annual compliance with the rules and regulations in the provision of such advice will have a considerable cost to the plan and/or its participants as well.
So what should you do if you are considering offering advice to plan participants?
1) You could await final legislative and regulatory enactment by Congress and the Department of Labor and then determine your course of action; or, 2) you could continue to follow the guidelines set forth in the Pension Protection Act of 2006.
Either way, plan participants are in need of the kind of advice we can offer them.
