| 05 March 2010

The Department of Labor announced today that they have proposed a new rule that would require 401(k) plan an other retirement account advisers to disclose their fees and "computer models." Advisers would also be required to offer advice that is "certified" as objective and unbiased.

The proposed rule, which is open for comment until May 5th, is the Department's effort to protect investors from advisers who tend to make recommendations based on the fees and commission they stand to earn. The Department claims that upwards of $6 billion would be saved by two million workers and 13 million IRA holders.

U.S. Deputy Secretary of Labor Seth Harris said in a statement, "These rules will strengthen America's private retirement system by ensuring workers get good, objective information. When that happens, workers make the kind of decisions that are good for their families and the nation as the whole."

Current retirement plans, whether offered through a company in the form of a 401(K) or to individuals in the form of an IRA, often offer limited investment choices and indirect help, at best, from advisers. Target date funds have recently caught on as a catch-all alternative to individual fund choices. But those offerings have come under fire for their high fees and conflicts of interest.

Most of the larger online brokers such as TD Ameritrade (AMTD), Fidelity and Charles Schwab (SCHW) offer custody services for RIAs managing 401(k) and IRA plans. While it's unclear how these firms will be affected, what is certain is that they're in a good position to offer alternatives to the higher-fee actively managed funds favored by many advisers.

Vanguard Investments stands to benefit most from the rule. Not only are their funds almost always lower in cost than comparative actively managed funds, they outperform those actively managed funds in almost every category. It will be very interesting to see what happens if advisers are finally required to disclose that simple fact.