Prudent Practices for Fiduciary Advisers Under the Pension Protection Act's Title VI

November 2007
Journal of Financial Planning;Nov2007, Vol. 20 Issue 11, p76
Academic Journal
The Pension Protection Act of 2006 (PPA) encourages sponsors of qualified pension plans to augment general investment education with specific investment advice for plan participants. It does so by allowing plans to retain qualified "fiduciary advisers" and by establishing "safe harbor" procedures to insulate plan sponsors from the liability associated with the advice. In defining a "fiduciary adviser" the PPA will have a profound impact not just on retirement advisers, but on the entire investment industry. This article, adapted from a new handbook, Prudent Practices for Fiduciary Advisers, examines what it means to be a fiduciary adviser under the new act, particularly as related to Section 601 (Title VI), and offers some of the best practices advisers should follow when delivering custom advice to plan participants. The PPA provides the fiduciary adviser who is associated with a plan's service vendor (such as a mutual fund company) prohibited transaction relief as long as the adviser provides advice using a certified computer model. For the fiduciary adviser who is not associated with a service vendor the adviser is required to be fee neutral (also referred to as "level comp"). That is, there can be no variability to the advisers compensation based on which fund family, asset class, or share class is suggested by the adviser. In all cases, the fiduciary adviser must agree to provide personalized advice to plan participants and disclose all conflicts of interest, including sources of fees and compensation related to the plan and its investment options. All disclosures must be accurate and comprehensive, and written in a "clear and conspicuous manner."


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