Summary Box: New investment advice rule released

AP News
Posted: Oct 24, 2011 3:53 PM
Summary Box: New investment advice rule released

THE NEW RULE: The Department of Labor on Monday issued a new regulation designed to improve access to expert investment advice for workers with 401(k) and individual retirement accounts.

The rule makes it easier for providers of 401(k) plans such as Charles Schwab, Vanguard, and Principal Financial to offer their own individual account advice and bundle it with their other retirement account services.

WHY IT'S NEEDED: Currently an employer offering a 401(k) from a provider such as Vanguard contracts with a separate independent adviser to comply with regulations against conflicts of interest. Regulations prohibit investment advice to be given by anyone who might financially benefit from the advice. The new regulation provides an exemption that enables 401(k) providers to offer advice if the investment advice is based on an unbiased computer model or the adviser's compensation is not affected by the advice. The advice arrangement must be audited annually to ensure it complies with the regulations.

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WHEN IT'S EFFECTIVE: The regulation goes into effect Dec. 27.