There is a bill coming up for vote in committee (House Education and Labor Committee) soon that proposes to address the issue of independent advice for your investing activities in your 401(k) plan. I wrote about this problem a while ago: in this post here and a little bit here.
The wonderfully-named Conflicted Investment Advice Prohibition Act of 2009 reckons to disallow conflicted advisors (those who are beset with conflicts of interest in providing advice) from providing employer-sponsored advice to 401(k) plan participants. Namely, those advisors who stand to benefit personally in terms of compensation from the counsel that they might provide to 401(k) plan participants.
This is very important legislation because earlier this year, the Department of Labor completed a ruling that gives permission to the brokerages and investment houses to provide advice to 401(k) plan participants (this was a clarification of a law set forth in the Pension Protection Act of 2006). The advice that they provide represents major conflicts of interest for the participant, since the advisor stands to benefit from various choices made with the plans.
While I believe it would be beneficial to the 401(k) plan participant to have investment advice available to them as they make decisions about their investments, I believe that conflicted advice doesn’t fit the bill. The appropriate advice would be independent of compensation-oriented conflicts of interest – meaning the advisor is not related to the custodian and receives all compensation from the participant or the participant’s employer. Period. Oh yes, and the advisor should act as a fiduciary on the participant’s behalf. Not too much to ask, don’t you think?
Look for more updates as this legislation moves its way through.
Click the link to pick up a copy of A Social Security Owner's Manual or if you'd prefer the Kindle version (and let's face it, ALL the cool kids do!), you can find that at this Kindle version link.
I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
And if you've come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed "advisor's advisor".
[...] appropriate for folks who are providing advice to plan participants – which I wrote about in this article. A brief summary of the WSJ article [...]