Insurance agents serving as investment advisors, as well as sponsors and beneficiaries of such self-directed retirement plans as 401(k)s and individual retirement accounts will benefit from new rules dealing with the issue that have been proposed by the Department of Labor, say officials at the National Association of Insurance and Financial Advisors.
"Under the new rules, for the first time, an individual advisor would be allowed to actually sit down with employees and give them personalized advice, albeit based on objective criteria," said Jeff Taggart, NAIFA president.
It does this by providing a safe harbor to sponsors of the plan, he said. "Employers don't have to fear being sued because a beneficiary is disappointed with his investment return," Taggart said.
However, he cautioned, the advice must be objective and follow guidelines provided under the regulations, and all fees and compensation must be disclosed.
It would also allow investment advisors such as insurance agents to provide individualized advice through use of computerized programs, although that is of greater importance to carriers and mutual funds, according to NAIFA officials.
"The problem with the prior system is that statistically most beneficiaries stuck with very conservative investments, although other, more suitable products with greater investment return over time were available," Taggart said.
The comment period on the proposed regulations ends Oct. 6. But in releasing the rules, DOL officials said they hoped to finalize the rules before year-end, i.e., before the current administration leaves office.
Michael Kerley, NAIFA senior vice president, federal government relations, said the proposed rules "differ slightly" from the statutory language in a couple of cases, and "that may or may not be important to us." But, he said, "NAIFA has as yet not made a decision as to whether we should comment on them."
The proposed regulations implement language in the 2006 Pension Protection Act authorizing a safe harbor from the prohibited transaction provision of the Employee Retirement Income Security Act (ERISA). Industry officials lobbied hard for including the provisions in the legislation.
Officials of the American Council of Life Insurers declined to comment on whether it supports specific provisions of the legislation.
"We are pleased the department has moved forward with its proposals," said Steven Brostoff, an ACLI spokesman. "We are now examining the specifics of the department's proposals and intend to review them with our member companies."
Specifically, the proposals state that one of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased.
Moreover, the computer model must be designed and operated to apply generally accepted investment theories that "take into account the historic returns of different asset classes over defined periods of time."
