Will anyone use the new exemption?

[Peter Gulia]

Do we think that anyone will use the new statutory exemption [ERISA § 408(b)(14) and 408(g)] for an eligible investment advice arrangement?

The Labor department says that the 2006 Act provision “did not invalidate or otherwise affect prior guidance of the Department relating to investment advice[,] and that such guidance continues to represent the views of the Department.”

Either the “new” exemption or the “old law” uses the same two ideas to manage a conflict: leveling compensation, or using a person independent of the conflict to make the advice.

The key difference seems to be that the statutory exemption requires an independent audit and some extra conditions not in the earlier guidance.

For a business that wants to render investment advice to participants, isn’t following the “prior guidance” good enough?

Why would a business prefer the statutory exemption?

[Guest cbclark]

Do we think that anyone will use the new statutory exemption [ERISA § 408(b)(14) and 408(g)] for an eligible investment advice arrangement?

The Labor department says that the 2006 Act provision “did not invalidate or otherwise affect prior guidance of the Department relating to investment advice[,] and that such guidance continues to represent the views of the Department.”

Either the “new” exemption or the “old law” uses the same two ideas to manage a conflict: leveling compensation, or using a person independent of the conflict to make the advice.

The key difference seems to be that the statutory exemption requires an independent audit and some extra conditions not in the earlier guidance.

For a business that wants to render investment advice to participants, isn’t following the “prior guidance” good enough?

Why would a business prefer the statutory exemption?

Ah Mr. Gulia, your last question is the $64,000 one. Buried in the proposed rules was a reference that the plan sponsor as fiduciary could avoid liability for bad investment advice given to a participant by a participant-level advisor if all the hoops were cleared. I confess I have not combed the final rule. One thing that would motivate a business to prefer the statutory exemption is to deflect half-true marketing efforts in the new wild wild west of fiduciary obligations. I know TPAs who have been blindsided by some clever marketers who pitch to the TPAs' clients that if the TPA does not use a particular form of canned fiduciary compliance materials and protocols, the TPA is in breach of (fill in the blank) and the plan sponsor can have dire consequences imposed. Is this true? Not necessarily, but it certainly sounds scary to the person who runs a business or makes widgets and relies on experts to help him or her navigate the qualified plan arena. So, many businesses may end up following the new rules to prove that they are "super compliant," even though they were always compliant. The smoke and mirrors "prove a negative" style of marketing is driving a lot of the decision-making. At least that is what it looks like to me.

[Peter Gulia]

Hear everything you're observing about sales methods (and I've heard many that are much worse).

But the statutory exemption and its interpretive rule seem to contemplate that it is the fiduciary adviser (not the plan sponsor/administrator) that engages the independent auditor and bears that expense.

If an adviser can exempt the PTs under the old law, why would the adviser take on the extra expense to get itself no greater relief?

Or is a new advertising label so valuable that the fiduciary adviser will pay the extra expenses for it?

[Guest cbclark]

Yes, it is my reading that the advisor obtains and pays for the audit, but the definition of "auditor" is not included, so presumably a separate financial outfit or attorney or CPA could bless one's methods. There could be a whole cottage industry of blessing each other's methods and procedures.....

Why would an advisor do this? In large part to make sure he or she is not iced out of the market place. Or worse, trash talked. I have seen some pretty cutthroat approaches, declarations by marketers that TPA X or Y was totally noncompliant because they did not do EXACTLY what the marketer said the RULES said that they had to do. Did the marketer cite chapter and verse of the rules? Of course not, they created glossy brochures and complex Venn diagrams that "proved" the other entity was just lame and not worth keeping or hiring. That is my extremely jaded take today!

The other quirk is if one uses computer modeling, one has to have the model independently certified. We are in idle discussions with a vendor that has a really great computer model, but no one can tell me who "certified" it. If we want to use the computer model to have the "extra protection" we have to have the certification...it is all a confusing mess. I imagine there will be lots of discussions going forward about what all this means and how it is implemented.