With both regulatory and legislative efforts to rebuild investment advice regulation still pending, several of the witnesses testifying Thursday said the system in place based on the Department of Labor (DoL) SunAmerica advisory opinion has proven effective in recent years in getting advice to Americans. It should not be disturbed, the witnesses insisted.

The recent measure approved by the House Education and Labor Committee would make it more difficult and expensive for sponsors to continue their efforts to provide advice, leading many to vow to abandon the advice provision completely (see “House Subcommittee Passes Fee Disclosure, Advice Bills”).

“The Education and Labor Committee set out to improve the quality of investment advice. However, the bill’s broad reach would, in fact, cause a huge reduction in the provision of sound non-conflicted advice by invalidating pre-PPA arrangements,” said lawyer Robert G. Chambers, who appeared on behalf of the American Benefits Council, the Profit Sharing/401k Council of America, and the Society For Human Resource Management (SHRM). “The effect of this reduction in advice arrangements would be very adverse, because, as noted, today, more than ever, participants need advice to get them back on course toward retirement security. In a very large number of cases, the following types of nonconflicted advice would be prohibited or made much more expensive and cumbersome by the Education and Labor Committee bill.”

Christopher Jones, executive vice president of Investment Management and chief investment officer for Financial Engines, agreed with Chambers.

“Financial Engines believes that our ability to operate under the SunAmerica Opinion has substantially facilitated the delivery of unconflicted advice to plan participants,” Jones said. “We believe the SunAmerica framework allows Financial Engines to provide convenient and cost-effective access to independent and unconflicted advice to more participants, particularly those working for smaller companies. Employees benefit when investment advice is part of a single fully integrated source for all their 401(k) plan questions.”

SunAmerica Clarity

"Employers need clear rules that apply when an employer chooses to make investment education or investment advice available under a participant-directed defined contribution plan," said Mark Ugoretz, president of the ERISA Industry Committee.  "Congress should recognize, however, that plan sponsors and fiduciaries are increasingly targeted in class-action lawsuits that propose expansive theories of fiduciary liability and seek substantive damages.  Even when these lawsuits are without merit, as is often the case, they are expensive to defend and they divert time and attention from the employer's business."

However, one witness argued that the SunAmerica system still does not provide the needed clarity to financial services providers.

"What we have is advisory opinions, prohibited transaction exemptions and information bulletins that leave room for practices I think should be of concern," said Mark A. Davis, vice president and financial adviser with CAPTRUST Financial Advisors, who testified on behalf of the National Association of Independent Retirement Plan Advisors.

Appearing at a recent conference, Assistant Secretary of Labor Phyllis Borzi announced that the DoL was taking a new look at an investment advice regulatory rule proposed by the prior Administration (see “EBSA Sets Out Carrot, Stick Agenda”) and that a revised version would be made public shortly.