Brokerage firms have long managed assets in employer-sponsored retirement accounts, but offering specific investment advice to individual plan participants has always been off-limits to reps. That could change soon. According to the rules of the Pension Protection Act (PPA), which passed the House of Representatives last Friday, brokers would have access to this heretofore-unreachable pool of assets in defined-contribution plans, worth an estimated $2 trillion.

The PPA is chiefly designed to shore up the $313 billion funding gap in employer-sponsored pension plans by encouraging firms to not only keep their plans but to also increase their contributions and use automatic enrollment. Plus, the PPA contains an investment-advice proposal. Pushed for by Senator John Boehner (R-OH) for seven years now, the statute will allow financial advisors to offer specific investment advice to individual retirement-plan participants.

With access to plan participants, advisors would be able to cultivate new relationships and, perhaps, boost the size of their books. Financial-services industry lobbying organizations certainly see a benefit: Both the Securities Industry Association (SIA) and the Investment Company Institute (ICI) have heaped praise on Boehner’s proposal. Meanwhile, critics, like Edward Siedle, a former SEC attorney and founder of Benchmark Financial Services, which investigates money managers, say the pension and 401(k) industries have enough problems without allowing more interested parties into the mix. “For example, there is no way for a 401(k) plan participant to verify the accuracy of their statements,” Siedle says. As for the Department of Labor, he says the pension industry’s enforcer is inept and routinely playing catch-up with problems. Says Siedle: “Now you’re going to let people with even less professional skill into the mix?”

While the bill’s fate is uncertain, so is the interest of brokers. So far, many advisors seem clueless about the opportunities presented in Boehner’s proposal, or they are simply disinterested—most accounts are viewed as being too small. “It’s nice for me that all of my 401(k) clients can ask me to come in and give them advice,” says one Robert W. Baird advisor, tongue firmly in cheek. He says the problem for most brokers will be the time commitment to what amounts to a lot of below-average accounts. “Twenty percent of the company is likely to have 80 percent of the assets, those are the clients brokers want,” he says. “But as a fiduciary, you can’t discriminate within a plan.”

Indeed, there will be a lot of things reps won’t be able to do. Here’s a quick summary of the specifics of Boehner’s investment-advice provision in the PPA:

Who’s eligible:
Only qualified fiduciary advisors may offer investment advice. A Series 7-holder, who operates under a “suitability” standard, can qualify if he agrees to act as a fiduciary (like a registered investment advisor does under the Investment Adviser Act of 1940).

Fiduciary safeguards:

  • Advice must be prudent, objective and for the “exclusive purpose” of providing benefits to plan participants and beneficiaries.
  • Employers are responsible for selecting and reviewing advice providers.
  • Advisors will be personally liable for the advice they give. That means they will be subject to any civil and criminal penalties by the Labor Department, civil lawsuits from the aggrieved worker and additional excise tax from the Internal Revenue Service.


In regard to specific advice, the provision requires that:
  • Any purchase or sale occurs solely at the discretion of the advice recipient;
  • Compensation of the fiduciary advisor is reasonable; and
  • The terms of any purchase or sale of a security must be at least as favorable to the plan as an arm’s-length transaction would be.


Additionally, fiduciary advisors to both non-employer-sponsored plans and employer-sponsored plans must first use a certified and audited independent computer model to tailor investment advice for participants. If the participant then wishes to seek advice directly from the advisor, he can do so.

Sound like a long walk for a short day at the beach? The Baird broker thinks so. His plan is to keep doing what he does now—offering occasional free informational seminars to the employees of his executive clients as a favor. His advice to other brokers: “Give away custodial service to 401(k) clients so that when they leave the company—with a much larger 401(k)—you have the potential to take over management of that money.”