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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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Investment adviser law

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: Why is the new pension law being referred to as the "Investment Advisers Employment Security Act"?

A: This joking title springs from the fact that independent Registered Investment Advisers are pleased that the federal government is calling public attention to the differences between "advice" and "sales" in the financial services industry in provisions built into the Pension Protection Act of 2006. Current federal law known as ERISA prohibits financial service providers from providing investment recommendations to participants in 401(k) plans or IRAs, which include investment options affiliated with their own institutions. These lines are commonly blurred and most 401(k) plan and IRA representatives present their service as providing "investment advice". What most people consider "investment advice" from a broker, agent, registered representative or mutual fund employee is actually considered a sales presentation under the law. The new pension protection Act of 2006 now allows qualified fiduciary advisers to offer limited personal investment advice to the participants in employer-sponsored 401(k)s and IRAs if the advice is presented through computer models certified by the Department of Labor and Treasury. A "qualified fiduciary adviser" basically means a person who is a state or federal Registered Investment Adviser. The new law calls attention to the fact that real, unrestricted investment advice can only be provided by an independent Registered Investment Adviser who is not affiliated with the firm that provides sales or administrative services to a 401(k) or IRA. Since most people do not make investment decisions based on computer models, it becomes essential that employers contract with a separate independent firm in order to comply with laws requiring that employees have access to independent investment advice. The problem with this approach is that it increases the cost associated with investing through an employer-sponsored retirement plan. Independent Registered Investment Advisers typically charge about 1% of assets per year, raising the total cost of an employer-sponsored 401(k) or IRA plan by about 40%. While this may not seem like a lot, Vanguard Group and others estimate that this adds up to more than $20,000 over the working career of a typical retirement plan participant! One obvious possible solution is to provide low cost independent investment advice that is not based on the asset-based charges. But apparently fewer than one in one thousand independent Registered Investment Advisers actually offers this low cost option. (Our affiliates services at and are two low cost independent Registered Investment Advisory services that do not use asset-based fees).


More resources:

H.R. 4 - Pension Protection Act of 2006