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SVIA Supports Advice Act

Investor education and access to sound advice for plan participants seem to be decreasing while individual responsibility for making major investor decisions is definitely increasing.  As 401(k) plans and their assets grow, individual investors become more and more responsible for their financial well-being. There is a clearly demonstrated need for investment advice.

U. S. Department of Labor, Assistant Secretary for Pension and Welfare Benefits, Ann Combs says that, “meaningful comprehensive investment advice is more important now than it has ever been because of the increasing numbers of workers who have the responsibility for the investment of their pension plan assets.  Their retirement security,” she says, “will depend, in large part, on how wisely they exercise this responsibility.”  In fact, the recent John Hancock Financial Services’ 2001 Defined Contribution Survey revealed that they are not doing a very good job.  The Survey found that:   

• When asked what kinds of assets are held by money market funds, only 9 percent of the 800 respondents knew the funds invest only in short-term investments.  A stunning 44 percent thought they invest in stocks.
• Roughly 70 percent of respondents said they would sell stocks after a significant market decline.  This indicates they would buy high and sell low—exactly the opposite of what they should do.
• Respondents who rated themselves relatively knowledgeable about investing said they expect stock market returns to average more than 22 percent a year over the next 20 years.  Statistics complied by Ibbotson Associates, a Chicago-based research firm, indicate that from 1926 to 2000 there has never been a 20-year time period when stocks, large or small, averaged gains that high. 

U.S. Congressman John Boehner has addressed the growing “investment gap” by introducing H.R. 2269, the Retirement Security Advice Act.  The bill permits investment service firms who contract with employers to provide investment advice about all investment products as long as they disclose any relevant information about the advisers’ fees and potential conflicts. Investment advisers will still be subject to fiduciary liability under ERISA, including civil and criminal enforcement by the U.S. Department of Labor.  The Advice Act also clarifies that employers are not responsible for the individual advice given by professional advisers to individual participants, removing the barrier that prohibits employers from contracting with advice providers.  Though, employers will remain responsible under ERISA fiduciary rules for the prudent selection and periodic review of any investment adviser. 

The Retirement Security Advice Act would help workers make better investment decisions with their retirement dollars by updating federal law to allow employers to provide their workers with access to high quality professional investment advice.  Outdated federal law denies many workers access to investment advice that could help them manage their retirement savings.  The law was enacted long before the rise of employee-controlled pension plans that allow employees to make most investment decisions.

There is widespread support of the goal to increase access to investment advice for pension plan participants.  No one can rebut the necessity of advice and education for America’s newest investors.  However, like most things, consensus is easily reached on the problem   It is the solution that divides.

Critics of the measure primarily argue that investment advice, when given by providers who stand to benefit financially from it, should be free from the financial conflict currently banned under ERISA.  Despite disclosure requirements equal to those of the Securities Exchange Commission (SEC), they believe investment advice should continue to be given by objective and qualified independent providers.  “ERISA’s ban on such conflict of interest transactions, “ says Joseph Perkins, Immediate Past President of AARP, “is necessary to ensure that the advice provider is acting for the ‘exclusive benefit’ of plan participants.  Disclosure alone is not sufficient.”  The alternative is to increase national efforts to encourage independent advice prior to weakening current law to permit investment advice by those with an interest in their own financial products.

Stable Value Investment Association supports the Boehner bill in beginning this inevitable discussion on investment advice for the growing number of defined contribution plan participants.  The Association believes that The Retirement Security Advice Act of 2001 will serve as an invaluable tool in assisting DB plan participants to improve their savings and investing for a financially secure future.  This bill will ensure that individuals, plan sponsors and fiduciaries are knowledgeable about stable value funds along with other asset classes and will further ensure that individuals build a well-diversified portfolio to achieve their individual retirement savings and investment goals.

SVIA whose members collectively manage $225 billion in stable value funds for 115,000 defined contribution plans encourages you to support H.R. 2269, The Retirement Security Advice Act of 2001.

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