Conflicted Investment Advice Prohibition

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Jul 5, 2009 3:13 pm

Has anybody read anything about this? The way I read it, this is a win for RIA's. If it passes, that is.



"The newly proposed investment advice legislation introduced by Congressman Andrews last week raises serious

questions about the fate of the final investment advice regulations published in March 2009 in accordance with

the PPA and delayed by the Obama administration for 60 days for further review and consideration. The final

regulations essentially codified a means by which advisers that provided participant investment advice for a fee

could receive compensation that could vary based on the investments recommended without violating the

prohibited transaction rules under ERISA.   



The final rule does require that the “fiduciary adviser” adhere to specific procedures and disclosures.

Congressman Andrews, who has been a critic of the class exemption for providing investment advice to

participants provided by the final rule, eliminates it from his proposed legislation. The bill would preclude 401(k)

plan fiduciaries from providing investment advice unless the adviser is an “independent investment adviser.” To

be an “independent investment adviser,” advice would need to be provided either using a computer model

certified as unbiased and meeting certain other requirements or by an adviser that would not be permitted to

provide or manage any plan investments (either directly or through an affiliate) and that would not be allowed

to receive fees from any person (or affiliate of a person) that markets, sells, manages or provides plan

investments unless the fees are level.   "

Jul 6, 2009 8:58 am

I've been following this pretty closely, and so far it doesn't seem very clear cut.  Can you provide a link to your source so I can see what information you are getting?

Jul 6, 2009 9:07 am

http://www.investmentnews.com/article/20090602/REG/906019961



http://edlabor.house.gov/markups/2009/06/the-conflicted-investment-advi.shtml



There was one more that talked about it in depth, but I can't seem to find it right now.

Jul 6, 2009 11:35 pm

Personally, it's all so up in the air that its hard to tell where it will hit the ground.  Its been postponed, and now it looks like it may never happen (at least not by December).


The sticky point is the 'level fee' requirement.  Both regarding the statuatory and class exemption.  I may have these two backwards, but for the statuatory exemption, the firm has to have a level fee agreement.  So whatever is offered to the client, by the firm, can't have a penny difference.  In the class exemption, it just pertains to the particular IAR.


As an RIA, you would have to look at EVERYTHING.  Do you have any soft dollar arrangments?  Do you receive 12b-1 fees?  Do you receive any gifts or entertainment expenses from others?   Do you have propritary (sp) funds?  Do you have syndicate offerings?  Do you have directed brokerage agreements? etc. etc.


If you pursue this, I would recommend an ERISA lawyer (when the dust settles).
Jul 8, 2009 10:43 am

One thing you can be certain of, is that by the time Congress and the Obama Administration are done re-writing the rules, it will be more expensive and more confusing than it ever has been, with ever-more opportunities for disgruntled clients to sue their advisors and firms.

Jul 8, 2009 11:26 am
Wet_Blanket:

Personally, it's all so up in the air that its hard to tell where it will hit the ground. Its been postponed, and now it looks like it may never happen (at least not by December).



The sticky point is the 'level fee' requirement. Both regarding the statuatory and class exemption. I may have these two backwards, but for the statuatory exemption, the firm has to have a level fee agreement. So whatever is offered to the client, by the firm, can't have a penny difference. In the class exemption, it just pertains to the particular IAR.



As an RIA, you would have to look at EVERYTHING. Do you have any soft dollar arrangments? Do you receive 12b-1 fees? Do you receive any gifts or entertainment expenses from others? Do you have propritary (sp) funds? Do you have syndicate offerings? Do you have directed brokerage agreements? etc. etc.

If you pursue this, I would recommend an ERISA lawyer (when the dust settles).





Wet - I should be ok. Zero soft dollar arrangements. No 12b-1 fees. Zero gifts or entertainment expenses from anybody. Zero proprietary funds. No offerings, and no directed brokerage agreements. I can use anybody.



I'm not sure the "level fee" requirement would be too big of a problem. Depending on what happens, and the direction we drive the business before this thing happens, I might take you up on your advice and retain an ERISA attorney for this.

Jul 8, 2009 12:12 pm
Moraen:
Wet_Blanket:

Personally, it's all so up in the air that its hard to tell where it will hit the ground.  Its been postponed, and now it looks like it may never happen (at least not by December).



The sticky point is the 'level fee' requirement.  Both regarding the statuatory and class exemption.  I may have these two backwards, but for the statuatory exemption, the firm has to have a level fee agreement.  So whatever is offered to the client, by the firm, can't have a penny difference.  In the class exemption, it just pertains to the particular IAR.



As an RIA, you would have to look at EVERYTHING.  Do you have any soft dollar arrangments?  Do you receive 12b-1 fees?  Do you receive any gifts or entertainment expenses from others?   Do you have propritary (sp) funds?  Do you have syndicate offerings?  Do you have directed brokerage agreements? etc. etc.



If you pursue this, I would recommend an ERISA lawyer (when the dust settles).



Wet - I should be ok. Zero soft dollar arrangements. No 12b-1 fees. Zero gifts or entertainment expenses from anybody. Zero proprietary funds. No offerings, and no directed brokerage agreements. I can use anybody.

I'm not sure the "level fee" requirement would be too big of a problem. Depending on what happens, and the direction we drive the business before this thing happens, I might take you up on your advice and retain an ERISA attorney for this.

 
Sounds like the level fee requirement won't be much of an issue, since you don't have any of those things (I'm sure I've forgotten some).  Depending on when and if you go this route, give the whole situation time to settle because all the ERISA lawyers we've talked to still seem to have a question mark over their head (of course that doesn't stop them from billing you).