Pending legislation could clear the way for advisors with 401(k) business to sell financial advice to plan participants. On May 14, the House of Representatives passed the Pension Security Act of 2003, the first step to opening the door for 401(k) plan providers to offer investment advice.
Current law prevents vendors from providing advice to plan participants. "What this does is allow the plan sponsor and provider to begin giving advice as part of the educational process," says Rick Meigs, president of 401khelpcenter.com. "That’s what employees have been asking for."
Introduced by Rep. John Boehner (R, Ohio), the bill still needs approval in the Senate, a task that has proven difficult in recent years. In 2002 the Senate failed to act on similar legislation. David Wray, president of the Profit Sharing Council of America in Chicago, a lobbying group representing 401(k) sponsors, agrees that investors have sought more advice. As a result, says Wray, many sponsors already offer advice through a third party. If the bill passes this may change. "You’ll see more personalized advice offered as part of a packaged product," says Wray.
However, Wray believes companies with established 401(k) plans and third-party advice solutions will be reluctant to make changes. "Once you get a solution in place it’s not easy to change it in many cases."
Given President Bush’s support of the bill, Meigs believes the chances of its passing are high. "If we’re going to expect employees to be responsible for managing their own assets we need to do more educating," says Meigs.