Federal rule change will allow financial planners to give 401(k) advice

Retirement plan advisors are awaiting new federal regulations that will make it easier for 401(k) plan participants to receive investment advice.

The new regulations will give advisors opportunities to work more closely with clients, said Janet Ganong, financial and retirement plan consultant with The Kieckhefer Group, a Milwaukee division of RBC Wealth Management.

“The legislation has said formally that it’s OK for me to talk to you and give you advice,” she said. “It now provides us both with safe harbor, permission to do this and guidelines. It also provides the plan provider some guidelines.”

The new rules have been approved by the U.S. Department of Labor, but have not yet been signed into law. The DOL issued the regulations in late January, but they were placed on hold by the then-new Obama administration.

The DOL has created a set of rules that tell advisors and providers how they need to disclose their fees and advising process to clients. When those rules are finalized, 401(k) plan advisors will be required to use computer software to help make plan recommendations that are unbiased.

“That’s what the DOL is looking for, the process,” Kieckhefer said. “And it will also hold some advisors’ feet to the fire.”

The rules will also help plan participants determine if they are receiving adequate advice for the fees they pay their advisors, Ganong said.

“The DOL regulations on disclosure will help put value or have participants recognize the value they receive for the fees they are paying,” she said.

Part of the rule change will prohibit a fiduciary or a person with a material relationship with the fiduciary from programming financial modeling software to favor an investment option that benefits the fiduciary.

“A fiduciary is someone who you have placed trust in to take action in your best interest,” Ganong said. “If that person has created a revenue stream for themselves (by steering you toward one investment) that’s not in your best interest.”

Kieckhefer agreed.

“We’ve seen how advisors are organizing share classes to give themselves a revenue stream – that’s a no-no,” he said. 

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