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401(k) Advice Bill Yields Questions, Debate

As a bill that would allow fund companies to provide investment advice to 401(k) participants took a step closer to becoming law earlier this month, fund companies watched carefully as new developments cast uncertainty on what that law would entail.

The House of Representatives approved on Nov. 15 the controversial bill, but those new developments demonstrated that any bill that passes the Senate could be far different from the one the House approved.

On the morning the House passed the legislation, which is known as the Retirement Security Advice Act, an investment advice provider called Invesmart, released a list of suggested revisions to the bill that it hopes the Senate will consider as it reviews the legislation in 2002.

And, two days earlier, Sen. Jeff Bingaman (D-N.M.) introduced an entirely different bill in the Senate that, like the House bill, also aims to make retirement advice more widely available to workers.

The recent events illustrate how divisive the issue has become within Washington and within the fund industry. The Investment Company Institute, the fund industry's trade association, supports the legislation, while Invesmart and several other interest groups, such as the American Association of Retired Persons, are concerned that the House-approved bill presents a potential conflict of interest for fund companies.

The conflict, they say, is that funds may be tempted to steer investors toward products that charge higher fees and thus yield more revenue for complexes. Fund companies, meanwhile, accuse the likes of Invesmart of simply protecting their turf, opposing the legislation in order to bar them from competing in the advice-provider space.

Opponents of the House-approved bill are planning to voraciously lobby the Senate to either amend the bill or send Bingaman's legislation to the House for approval. "I think we were hoping that it would not get the Democratic support that it did get," Invesmart spokeswoman Cynthia Cavendish-Carey said of the House legislation. "But, absolutely, there is still movement. This is not a done deal."

Planning Around a Moving Target

Fund companies, meanwhile, are eyeing the developments closely and are tentatively exploring options for how they might provide more thorough advice to their clients should one of the bills pass. But, partly because of the introduction of new ideas for how the legislation will look, those companies are unsure of how any bill that becomes law will affect them. And so they are leery of planning too much in advance of the legislation's approval.

"A lot of goofy things can and do happen," said Stuart Brahs, a lobbyist for Principal Financial Group who has been following the developments closely. "What we might plan today might be a waste of time."

Brahs said Principal, which has approximately $112 billion in assets under management, is considering what it will charge for advice-driven services and how it might build those services into its offerings. But he did not provide specific details about how much the firm would charge.

And GoldK, an online distributor of 401(k) plans and other retirement services, says the firm might get into the business of providing advice as well should Washington approve a bill that allows it. But, like Principal, GoldK is leery of providing specific details about how its advice-driven services would be offered.

GoldK spokesman Bill Benintende said the plan providers will most likely be the key providers of advice on GoldK's behalf, but should demand increase, GoldK may offer such advice as well. As of Sept. 30, GoldK had distributed $791 million in plan assets, the company said.

"Going forward, we will gauge demand and see if that's something we should be looking into," he said.