Zacks Develops Advice Audit Service for Pension Bill Compliance
CHICAGO, IL, July 21, 2006 -- On July 20, House Majority Leader John Boehner announced a compromise in Pension Bill negotiations that will allow investment managers to give 401k participants specific and actionable advice on their own funds. To ameliorate the potential to self-deal, a concern addressed in the Senate Bill, the final version will require fund companies to have their internally generated advice models reviewed by independent experts.
In response, Zacks has developed Independent Financial EvaluatorTM, an accreditation program for 401k providers committed to complying with the Pension Bill at the highest levels. The service is offered by Zacks IFE, an independent financial expert as described in Department of Labor directives on advice and managed accounts.
Says Michael Case Smith of Zacks IFE, "While advice and automatic features are what participants need, there is absolutely nothing in the Pension Bill that reduces a plan sponsor's fiduciary responsibility to prudently select and monitor these programs. Clearly then, the more rigorous the independent evaluation a fund company undertakes, the easier it will be for them to prove that their investment advice is designed to serve plan participants, not themselves." Martin Schmidt, Zacks advisor and former head of advice, managed account, and lifecycle funds at Hewitt Associates, adds "It's critically important for fund companies to get this right. An extensive independent advice evaluation goes a long way towards rebuilding the trust that will make advice and automatic features work for everyone involved." Independent Financial EvaluatorTM is based on ERISA tenets of prudence, effectiveness, and safety:
- Prudent Expertise: The methodology used to generate the proprietary advice is reviewed by Dr. Edwin J. Elton, professor of Finance at NYU, co-editor of the Journal of Accounting, Auditing, and Finance, former Board Member of the American Finance Association, and author eight books and 90 articles.
- Effectiveness IndexTM: Zacks compares in-house advice models against the consensus recommendations of the nation's top asset allocators. A range of user scenarios are compared to age-based, risk-based and goal-based benchmarks to measure the effectiveness of the in-house advice models.
- No-Conflict Pricing: The Zacks fee model is based on the Department of Labor's SunAmerica Advisory, which caps the fees independent allocators receive as a percentage of revenue. This avoids the biased results that may occur when an individual or consultant is too dependent on advice audit fees from fund companies.
- Fiduciary Strength: A Pension Bill audit may be a fiduciary function. Unlike qualified individuals or consultants, Zacks is a Securities Exchange Commission-registered RIA with appropriate liability insurance coverages.
About Zacks
Since 1978, the Zacks group of companies have helped financial service firms avoid self-dealing and institutional bias by providing third party research and consensus earnings estimates. Zacks Independent Research, the nation's second largest independent provider, was selected by Morgan Stanley, UBS, Lehman Brothers, Piper Jaffrey, Deutsche Bank and WR Hambrecht as part of the SEC Research Settlement. Zacks IFE, an Independent Financial Expert as described in U.S. Department of Labor directives on advice and 401k managed accounts, is a fiduciary advisor for customized lifecycle and managed account programs for Fortune 500 companies.
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