Filed Under:Markets, Employee Benefits

ERISA Fiduciary Fix Offers Broker-Dealers Big Opportunity

A little known Department of Labor regulation has the potential to expand the reach of investment advice, improve its quality and untap a substantial flow of retirement money in motion.

So says Lou Harvey, head of the financial services market research firm Dalbar, with respect to ERISA 408(g), an exemption that permits advisors to use a certified computer model for advice delivery and be absolved of any fiduciary liability.

“They can maintain their compensation structures and at the same time control what it is their advisors are doing in the field,” he says, noting broker-dealers spend vast sums on arbitration costs because clients sue a firm based on what their advisor told them to do. “With the computer model that goes away,” Harvey says.

Broker-dealers have long resisted regulatory efforts to impose a fiduciary standard on their financial advisor reps. ERISA 408(g) allows broker-dealers to attain fiduciary certification while enabling broker-dealer reps to engage in sales and service activities. “Our computer model is a fiduciary,” Harvey says the firms can say. “But our guys are not there to provide investment advice; they deliver the investment advice that comes out of the [computer program].”

In other words, advisors can capture the flow of funds occurring every day when people take distributions out of their 401(k) plans as they retire — if that is consistent with the certified and annually audited computer model’s unbiased investment recommendations.

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Nichole Morford

Nichole Morford
Managing Editor

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