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View More Press Releases by The SPARK Institute

Press release:

The SPARK Institute Comments On EBSA’s Proposed Investment Advice Rules

Issued by: The SPARK Institute

Date: Apr. 29, 2010

SIMSBURY, CT, April 29 -- The SPARK Institute filed a comment letter today on the Employee Benefits Security Administration’s (“EBSA”) proposed investment advice regulations.  The letter commends EBSA for stating that neither the proposed rules nor the Pension Protection Act of 2006 (“PPA”) exemption relating to investment advice affects the prior guidance issued by EBSA pertaining to the provision of investment advice, but expresses concern over provisions that attempt to define acceptable investment practices and theory.  “We are concerned that EBSA’s statements regarding the use of historical performance data in connection with computer-based advice models will have unintended negative spillover consequences for retirement investment fiduciaries, plan sponsors and participants,” said Larry H. Goldbrum, General Counsel.  The comment letter is posted on The SPARK Institute website at http://www.sparkinstitute.org/comments-and-materials.php.
     “The SPARK Institute believes that EBSA’s position intrudes on a plan fiduciary’s discretionary authority and ability to rely on an independent investment adviser’s professional judgment and recommendations regarding what criteria are appropriate and important for making decisions that are best for the plan and its participants,” Goldbrum said.  “As a result, it will likely reduce the availability of computer-based investment advice for plan participants.”  Goldbrum also noted that the concepts in the proposed rules could have negative implications for educational and asset allocation tools that plan sponsors and service providers make available to participants in a non-fiduciary capacity.  “The creators of those tools and materials will likely not be able to rely on their professional expertise and judgment, and would have to consider the risks and implications of deviating from EBSA’s determination of acceptable and unacceptable investment theories,” he said.
     Goldbrum stated that language in the proposed rules limits selection criteria to fees and expenses which suggests, presumably unintentionally, a governmental bias in favor of passively managed or index funds over actively managed funds.  “We are concerned that this can be viewed as a governmental endorsement or ‘seal of approval’ of index funds,” said Goldbrum.  He also pointed out the impact of such a change in practice on retirement plan participants.  “Participants will question the credibility of advice they receive when the fund that is recommended to them has inferior historical performance.  The advice will be inherently suspect when the adviser is required to recommend a lower performing fund because it can only consider fees.”  As a result, Goldbrum said that participants may ignore the advice with respect to those funds or ignore the advice entirely.
     “We urge EBSA not to undertake defining concepts of ‘generally accepted investment theory’ because investment professionals have the appropriate knowledge and expertise to determine what theories and data should and should not be considered in connection with computer models or any other type of investment advice,” he said.
     The SPARK Institute represents the interests of a broad based cross section of retirement plan service providers and investment managers, including banks, mutual fund companies, insurance companies, third party administrators and benefits consultants.  Through the combined expertise of its member companies, the Institute provides research, education, testimony and comments on pending legislative and regulatory issues to members of Congress and relevant government agency officials. Collectively, its members serve over 62 million participants in 401(k) and other defined contribution plans.
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