The SPARK Institute filed a comment letter Thursday on the Employee Benefits Security Administration’s proposed guidance on 401(k) investment advice. SPARK’s concern is Department of Labor’s attempt to define acceptable investment practices and theory, instead of leaving the decision on what type of advice to offer, be it computer- or adviser-based, to plan sponsors and administrators.
In essence, SPARK said, the use of historical performance in computer-based models will weaken fiduciaries’ confidence in avoiding liabilities or lawsuits, and have the unintended consequence of sponsors and fund administrators offering less advice, education and investment tools to workers. Instead, SPARK recommends that the plan fiduciary select what constitutes appropriate advice.
“We are concerned that EBSA’s statements regarding the use of historical performance data in connection with computer-based advice models will have unintended negative spillover consequences for retirement investment fiduciaries, plan sponsors and participants,” said Larry H. Goldbrum, general counsel of the institute.
“The SPARK Institute believes that EBSA’s position intrudes on a plan fiduciary’s discretionary authority and ability to rely on an independent investment advisor’s professional judgment and recommendations regarding what criteria are appropriate and important for making decisions that are best for the plan and its participants,” Goldbrum said.
“As a result, it will likely reduce the availability of computer-based investment advice for plan participants,” he said.
Further, DOL’s proposed criteria on the selection of fees and expenses unintentionally suggests as government bias in favor of passively managed, index and potentially inferior-performing/lower cost funds, Goldbrum said.
“We are concerned that this can be viewed as a governmental endorsement or ‘seal of approval’ of index funds,” he said.
“We urge EBSA not to undertake defining concepts of ‘generally accepted investment theory’ because investment professionals have the appropriate knowledge and expertise to determine what theories and data should and should not be considered in connection with computer models or any other type of investment advice,” he said.