401(k) Advisors shouldn’t offer investment advice if they don’t know the compliance part of offering advice


The road to hell is paved with good intentions, so the person who does a good deed could end up getting punished.

Most financial advisors on a 401(k) plan do many things beyond the scope of what they were hired to do, such as helping the plan sponsor select a third party administrator or calling one up to complain about the service.

I have spoken to a number of advisors and a major pitfall for them is that they are giving plan participants investment advice without realizing it and by offering it, they are not abiding by the Department of Labor regulation that allowed it.

The problem is that many advisors don’t know the difference between investment advice and education (which they can offer without issue).

Education is general information such as asset allocation models and general investment information.

An advisor will be considered to be rendering “investment advice” to a participant or beneficiary only if

  1. 1. the person renders advice to the participant or beneficiary as to the value of securities or other property, or makes recommendations as to the advisability of investing in, purchasing, or selling securities or other property; and
  2.  2. the person, either directly or indirectly, (A) has discretionary authority or control with respect to purchasing or selling securities or other property for the participant or beneficiary, or (B) renders the advice on a regular basis to the participant or beneficiary, pursuant to a mutual agreement, arrangement or understanding (written or otherwise) with the participant or beneficiary that the advice will serve as a primary basis for the participant’s or beneficiary’s investment decisions with respect to plan assets and that such person will render individualized advice based on the particular needs of the participant or beneficiary.

If an advisor is giving investment advice without contracting for it is asking for trouble especially from the DOL.

If you are an advisor interested in offering investment advice and you will intend to abide the regulations and willing to pay for the compliance part of it, give me a call.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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