ICI Submits Testimony on Computer Model Investment Advice Programs, August 2007

Washington, DC, August 2, 2007 -. ICI suggested action in two areas as the Department of Labor considers the potential use of computer model investment advice programs in assisting IRA investors, according to testimony provided to the agency on July 31.

Background
Mutual funds are the investment vehicle of choice for many IRA investors. At year-end 2006, $2.0 trillion of the $4.2 trillion held in IRAs was invested in mutual funds. Mutual fund firms and their affiliates serve as providers of IRAs and related services, including investment advisory and management services.

When Congress enacted comprehensive pension reform legislation in 2006, it recognized the need to modify ERISA's prohibited transaction rules to allow 401(k) and IRA investors to obtain investment advice from service providers that assume fiduciary status with respect to their advice and meet disclosure and other conditions. However, the Pension Protection Act (PPA) presents interpretative challenges for DoL in its attempts to foster advice programs.

ICI Position
Groom Law Group Managing Partner Jon Breyfogle, testifying on ICI's behalf, observed Congress' clear intent in the PPA to expand opportunities for IRA holders to receive advice from IRA providers and their affiliates, and said that policy objective should guide the DoL in determining the feasibility of computer models and in its issuance of other interpretive or regulatory guidance on the PPA exemption. ICI noted the important clarifications provided in Field Assistance Bulletin 2007-1 but called for action in two areas:

The feasibility of computer models. Based on a reading of PPA requirements, and the results of an Institute's survey, ICI believes there is no computer model that can take into account the full range of investment options available for IRA investors in the IRA marketplace. Therefore, the DoL should move promptly to issue a class exemption, as PPA requires.
Clarifying regulations. DoL should issue clarifying regulations to facilitate use of the level fees option and, for ERISA plans, the computer model option.