Last month, we included links about the just-released DOL guidance on the investment advice provisions of the PPA. In my latest Fiduciary Corner column in InvestmentNews, I discuss the problems with allowing commission-based registered representatives to give advice to participants even with their conflicts of interest. This is a definite reverse in course from ERISA’s historic prohibition against conflicts of interest and from the original intent of the PPA to keep conflicts of interest out of fiduciary adviser-participant relationship. Management of conflicts, rather than avoidance of conflicts, puts us on the slippery slope of weakening fiduciary protections just when the economic and market conditions are teaching us the potential adverse consequences of doing so.
We have already seen that disclosure has proven to not be enough for the average plan participant. And the PPA-like conditions imposed on this new type of investment advice are neither convenient to the reps nor easy for the participants to decipher. I believe what we'll continue to find is that advisers who embrace the fiduciary role will have less onerous rules to comply with and find lower risks and higher rewards. You don’t need to jump through the special disclosure hoops required to get a prohibited transaction exemption if your business model doesn’t include inherent conflicts of interest.”
More links for information on this topic (finding an opinionated source on the subject proved to be a challenge. If you know of any good sources that take a clear stand, I'd like to see them. Leave them in the comments section below):
- Workforce Management provides a very thorough explanation and discusses both the supporting and critical views of the proposed exemption.
- Mondaq (free registration required) also provides a very thorough explanation. Interesting note in the observations section that recommends financial services firms carefully evaluate whether they can even internally manage the conditions.
- A Washingtonpost.com blog says to pay attention to where your advice comes from.
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