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Who Can Provide Investment Advice to 401(k) Participants?

Posted by Brent Everett on Wednesday, November 16, 2011 in Unconventional Wisdom

Employer sponsored retirement plans, including 401(k) plans, are governed by the Employee Retirement Income Security Act of 1974, commonly known as ERISA. Both ERISA and the Internal Revenue Code generally prohibit investment advisors from providing personalized advice to 401(k) participants if the advisor receives compensation from the investment vehicles that they recommend. This protects participants from conflicts of interest - specifically, from the advisor's incentive to recommend more expensive products that may increase the advisor's compensation.

So, if you're a participant in a typical 401(k) plan - one that's sold by a broker or an insurance company - chances are that you can't get individualized advice from the "advisor" who sold your company the plan. There are some new exceptions to this rule under the Pension Protection Act of 2006, but the advice is subject to safeguards and provisions preventing the slanting of advice by advisors for their own financial benefit. Essentially, this means providing advice based on a certified computer model or on a "level fee" basis, which must be supported by an annual audit.

There is a better way. A fee-only Registered Investment Advisor is compensated directly and solely by the retirement plan and has none of these conflicts of interest. Thus, a fee-only RIA, like Talis Advisors, can provide individualized investment advice to 401(k) plan participants without any restrictions.

Tags: 401(k), erisa, registered investment advisor, retirement planning

Brent Everett

Brent Everett founded Profisys, LLC, a fee-only Registered Investment Advisor, in 1998. While acting as Managing Director of that firm, he developed the investment philosophy and the portfolio models currently used by Talis Advisors. He earned a B.S. in Computing and Information Sciences from Oklahoma State University. Mr. Everett’s background includes experience in strategic marketing, executive management and investor relations at Texas Instruments, Samsung Semiconductor, EDI, CSCI, and his own consulting practice. Brent served on the Board of Directors for CSCI, where he helped structure and negotiate management's successful purchase of the company.

Mr. Everett has been a member of the Financial Planning Association, where he was elected to the Board of Directors of the local chapter, the International Association of Financial Engineers, the Econometrics Society, the Association of Pension Professionals and Actuaries Benefits Council, the Estate Planning Council of North Texas and Mensa. He has discussed small cap stock investing on CNNfn and his views regarding investment advisor disclosure have been quoted by several major publications. Along with Scott Maxwell, Brent has been the cohost of The Peaceful Wealth Radio Hour on CNN. He was named as one of Texas Monthly magazine's "5 Star" wealth managers in 2010 and 2011 and one of D Magazine's top wealth managers in 2010.

Mr. Everett lives in Plano with his wife and their Labrador Retreiver. He has served as a member of the Business and Professional Leadership Committee of the Plano Symphony Orchestra, and enjoys reading, fly fishing, college sports, and Formula One racing.