A comparison of responses to the 2010 investment advice rule

The deadline for submitting comments to the DOL on the 2010 Investment Advice Rule was May 5th and sixty-eight comment letters were submitted by individuals or organizations.  The expectation is that the comments will be analyzed in short order and the final rule published later this year. To get an idea of how the final rule might go, we'll take a look at two of the comment letters submitted.

The American Benefits Council, the American Council of Life Insurers (ACLI), and the Investment Company Institute (ICI) submitted joint comments. Their comments recommended the following:

• State that historical performance is an appropriate factor to consider
• Refrain from defining generally accepted investment theories
• Refrain from favoring one investment style
• Clarify the fee leveling condition by stating that fees cannot vary, but remove the suggestion that the fiduciary adviser is not permitted to receive any compensation based on the investment chosen

In fi360's submitted comments, it's interesting to see how our thoughts compare with respect to the four overall recommendations submitted by the American Benefits Council, ACLI, and ICI.  Specifically, fi360 stated:

• A fund's past performance relative to the average for its asset class is an appropriate criterion for allocating assets to the fund; especially risk-adjusted returns.
• Modern Portfolio Theory (MPT) and the Efficient Market Hypothesis (EMH) should be specified as generally accepted investment theories.  Others may be permitted as well, but there is a need to be specific to (a) assure that the processes used to formulate the asset allocation and investment selection recommendations are reasonable and (b) make certification of the computer model practical.
• The model should not assign different levels of risk to passively versus actively managed investment options because this would be neither practical nor reliable.
• The fee neutral (leveling) requirements in the proposed rules will provide significant benefits to participants and beneficiaries.

For three of the four, the organizations are pretty much on the same page; a sampling of comments submitted by others indicate that most agree on these issues as well, although there are differing views on specifics related to the fee neutral approach.  Where we find differences is with respect to generally accepted investment theories.  The American Benefits Council, ACLI, and ICI favor letting the market determine how and what generally accepted investment theories are applied to computer models and fi360 called for more specific guidance.  Fi360 also stated that the fee neutral approach is preferred because the complications and possible manipulation related to the computer model with respect to managing conflicts of interest will make it much more difficult to implement and enforce.

Clearly there is interest in this final rule and most agree that implementation is necessary in order to give participants better access to professional investment advice.  We're hoping that we see the final rule very soon.

Comments

[smartbrains]

You are a great but As someone who has practised law, conducted business as an RIA and held securities licences, I must respectfully disagree.whether a particular security is suitable, his advice is no longer incidental to his brokerage activity, and the quacking will make this duck a fiduciary.
Investment Support
http://investmentsupport.co.uk