U.S. Department of Labor Releases Final Regulation on Investment Advice | Employment Law

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On October 24, 2011, the Department of Labor, Employee Benefits Security Administration, released its final rule on investment advice. This final rule implements a statutory prohibited transaction exemption under ERISA which permits financial advisors to receive fees from providers of investment products that are recommended to participants of employee benefit plans. The final rule becomes effective December 27, 2011.

The rule includes “safeguards and conditions” which are designed to prevent investment advisors from promoting investments that pay higher fees to the advisors. Specifically, investment advisors must be compensated on a “level-fee” basis for investments recommended to employee benefit plan participants, that is, the fees cannot very based on the chosen investments. Investment advice based on a computer model certified as unbiased will also qualify for the exemption. In addition, investment advisors must comply with certain recordkeeping requirements, provide full disclosure of its fees and conduct an annual audit of the investment advice arrangement.

If you have any questions concerning this matter or any other issues involving employee benefit plans, please feel free to contact us.