DALBAR Adviser Audit Upgraded for New IRA and 401(k) Regulation.

BOSTON -- DALBAR has announced upgrades to its audit program for fiduciary advisers required under the Pension Protection Act of 2006. This announcement comes in the wake of new regulation that extends the audit requirement to all advisers that serve IRA plans.

The new regulations made it clear that investment advice for IRA owners may only be provided by audited fiduciary advisers1. Louis S. Harvey, DALBAR's president noted that "The new regulation will help restore investor confidence that was badly injured by the financial meltdown of 2008".

The DALBAR Adviser Audit complies with Section 4975 of the Internal Revenue Code and Section 408(g) of ERISA as required for all advisers to participants in IRA and 401(k) plans. The DALBAR Audit was first introduced in 2007 to comply with the Department of Labor FAB 2007-01 that applied to level fee arrangements. The new version is now available to support advisers governed by the new broader regulation.

The new regulation governs IRA and 401(k) advisers who do not qualify under the level fee structure. These advisers can continue to earn commissions and 12b-1 fees but are subject to an annual audit for compliance with ERISA 408(g). See further detail on the 408(g) audit at http://www.dalbarinc.com/408gaudits.pdf.

Under the new regulation advisers with IRA or 401(k) participant clients (Fiduciary Clients) are required to revise current practices in a number of areasO

1. Each adviser must be free of any potential conflicts of interest, earn only level fees, use a certified computer model to create investment recommendations or use an "off model" process defined in the regulation.

2. Each adviser must have a written agreement with the Fiduciary Client, described as an eligible investment advice arrangement (EIAA). The EIAA must contain specific representations, including a fiduciary statement, details of fees and compensation, affiliations and services to be rendered.

3. Each Fiduciary Client must receive prescribed disclosures each year including any updates to information provided in the EIAA.

4. Advisers providing "off model" advice to a Fiduciary Client must document the basis of any such advice and include the reasons for any deviation from advice generated by the computer model or asset allocation portfolio.

5. Fiduciary adviser firms must adopt and follow written policies and procedures designed to assure compliance with the conditions of the regulation.

6. Each adviser must undergo an annual 408g Audit that evaluates the adviser's compliance with the EIAA as well as the adequacy of its own policies and procedures.

The DALBAR Adviser Audit consists of two components:

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DALBAR provides evaluation services to advisers, investment firms, banks, insurance companies, broker/dealers and retirement plans. Evaluations include auditing and validation against quality standards as well as public recognition and awards for achievement.

DALBAR was first to offer 408(g) Annual Audits for level fee fiduciary advisers in February of 2007.

1 The regulations say "prohibited transaction provisions of ERISA and the Code prohibit an investment advice fiduciary from using the authority, control or responsibility that makes it a fiduciary to cause itself, or a party in which it has an interest that may affect its best judgment as a fiduciary, to receive additional fees. As a result, in the absence of a statutory or administrative exemption, fiduciaries are prohibited from rendering investment advice to plan participants regarding investments that result in the payment of additional advisory and other fees to the fiduciaries or their affiliates. Section 4975 of the Code applies similarly to the rendering of investment advice by a fiduciary to an individual retirement account (IRA) beneficiary."