The Other Side's Two Cents
November 26, 2001
The Bingaman bill takes a different approach to making retirement advice more available to employees. It would provide "safe harbor" to plan sponsors that are concerned about being held liable for bad investment advice, a key reason why they don't offer such advice now. Supporters, such as the AARP, say the bill is a better option than that passed by the House because it includes measures that prevent conflicts of interest or self-dealing. The AARP worked with Bingaman to craft that bill, said David Certner, the organization's director of economic issues, mostly because, like Invesmart, which has lobbied against the Bingaman bill, is concerned about the possibility of conflicts of interest.
"We have a concern with making changes to one of the fundamental principals of ERISA," Certner said. "People at risk of self dealing should not be providing advice."
And then there are the recommendations released Nov. 15 by Invesmart. Those provisions include a limit on the number of proprietary products a firm can recommend when providing advice. The recommendations stipulate that a firm should only be allowed to recommend 20%-50% of its own funds, leaving the balance to other fund companies that can reap the gains from fees. Invesmart also suggests that any bill include a provision for monitoring advice providers to ensure that conflicts of interest are mitigated. The company suggests that an independent party review the practices of companies at least annually.
Lowell Smith, Invesmart's managing director of ERISA services, concedes that the Retirement Security Advice Act could impinge on its business. But he said fund companies will offer a more-limited mix of funds for investors to choose from than Investmart and, therefore, he is confident his firm will be able to compete in a wide-open marketplace.
In addition, he said Invesmart may be able to act as one of the independent monitors that are called for in his firm's suggested revisions to Boehner's bill. "But that's not something that we were thinking of when we came up with that," he said. "That's not really the business we're in."
Now, like other firms and interest groups, Invesmart is poring over the Bingaman bill while those who support Bingaman's legislation pore over Invesmart's suggestions. The developments came so quickly in mid-November, Smith said, parties haven't had time to form solid opinions about the new options.