In late November, DOL delayed the effective date for its ruling for the third time-this time to May 17, 2010. Three days later, DOL canceled the ruling altogether. Stories in Investment News speculated that DOL may be bowing to pressure from Congress to redraw the boundaries on who is permitted to offer advice to 401(k) participants. Some suggested that DOL might just wait until Congress finishes putting together its own plan. Others suggested that the independent advice rules may be combined with the Senate Banking Committee proposal to make all advisors fiduciaries. DOL said that it planned to issue a new proposed regulation followed by a comment period and then a final resolution, but offered no schedule.
I find this one of the most interesting issues for financial advisors in 2010. It seems clear that a new regulation will be more restrictive in defining who can provide investment advice than the one that DOL recently withdrew. If it is as restrictive as that proposed by Andrews and his committee, it would offer a huge new market for independent fiduciary advisors. I wonder how that can happen when the wirehouses, the mutual fund companies and all the other big guys who have the money and lobbying power are on the other side.
Of course, the squabble over investment advice won't be the only 401(k) issue to be resolved this year. Remember the Time cover story on why we should retire the 401(k)? As it turns out, Time has a solution, something that will be an improvement on the 401(k) in the magazine's view: "a system of exchanges that would allow individuals the ability to buy a guaranteed retirement account on their own." Time acknowledged that some government regulation would be needed, but it would be a private plan, a form of retirement insurance.
"So instead of putting 6% of your salary into a 401(k) or some other investment account, each pay period you would send 6% of your check to a retirement-insurance provider," Time suggests. "The policy would work similarly to a traditional pension in that it would provide a guaranteed monthly check equal to about a quarter of your final pay, from when you quit working until you die."
I see. Good idea. What will this retirement insurance plan invest in to guarantee this pension? Who will get paid to do that and how much? What if someone steals the money? This plan seems to have some holes. Still, it interests me-or at least the continuing brouhaha interests me.
My book, The New Commonsense Guide to Your 401(k): Rebuilding Your Portfolio From The Bottom Up, is just out from Bloomberg Press. I got pretty cranky while writing this book because the ground kept shifting beneath me and I feared I wouldn't be able to give sound advice. As it turned out, I look forward to speaking about it and keeping abreast of all the news in 401(k) plans, especially news about independent investment advice.
Mary Rowland can be reached at [email protected]. She has been a business and personal finance journalist for 30 years and has written two books for financial advisors: Best Practices and In Search of the Perfect Model.