DOL Finalizes Investment Advice Guidance for 401(k) Type Plans


The Department of Labor (the DOL) recently issued guidance that clarifies how advisers can provide investment advice to retirement plan participants in a manner that protects both the participant and the provider. The final rule, released by the DOL on October 24, allows investment advisers to provide individualized investment advice to participants in account balance plans, (401(k) plans, profit-sharing plans, and IRAs) if either (i) the advice is provided pursuant to a computer model certified as unbiased and as applying generally accepted investment theories, or (ii) the adviser is compensated on a “level-fee” basis (i.e., fees do not vary based on investments selected by participants).

In adopting the final rule, the DOL was balancing several considerations. For example, the DOL did not want to adopt a rule which might allow advice to be provided by an adviser who could have a conflict of interest. On the other hand, because retirement plan savings are expected to account for such a large portion of Americans’ retirement income, the DOL wanted to ensure that participants have access to quality investment advice so that, among other things, they might be more likely to pay lower fees, engage in less excessive or poorly timed trading, and more adequately diversify their portfolios.

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