The U.S. Senate passed the Pension Protection Act, which lawmakers hope will spur businesses to improve existing employer-sponsored retirement plans, on Thursday. There is also a special gift to financial advisors in the bill, which passed the House last week: The bill allows financial advisors to offer personalized advice to 401(k) plan participants. Until now, all advice had been of a general informational nature.
Passed by the House on Aug. 1, H.R. 4 now only needs the president’s signature to take effect in January 2007. Included among new rules for retirement accounts is an investment-advice provision that would allow brokers (Series 7-holders) who submit to the fiduciary obligations of advising 401(k) plan participants to do so without first registering as investment advisors with the SEC under the Investment Advisers Act of 1940.
While the financial-services industry is likely to gain greater access to the $2 trillion 401(k) market, most financial advisors shrug their shoulders at the legislation’s potential impact on their paychecks. “It really just removes a hurdle that shouldn’t have been there in the first place,” says one broker with Raymond James & Associates. “If you’re the vendor on a plan, you should be the expert—or have access to the expertise—on the plan,” he says. “But the thinking has been the plan provider might be tempted to sell them some type of proprietary product,” he says.
Duane Thompson, the group director of advocacy for the Financial Planning Association (FPA) in Washington, D.C., says his organization is still digesting the language of the bill, but acknowledges that could be a worry. “But I’d also say some advice is better than none at all,” he says.
Also included in the 900 pages of H.R. 4 is a strict seven-year timeline for pensions to fully fund their liabilities (with the exception of the airline industry, which gets 10 to 17 years), increased IRA contribution limits and greater leeway for employers to use automatic enrollment in 401(k) plans.
To read the actual text of the Pension Protection Act or the specific provision relating to investment advice, click here. For a summary of the rules and regulations contained in the investment-advice provision of the bill and how they affect reps, click here.