DOLs Fiduciary Rule – Improving Investment Advice for Workers and Retirees

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Ernie Guerriero, CLU®,ChFC®,CEBS,CPCU®,CPC®,CMS,AIF®,RICP®,CPFA

On June 29, 2020, the U.S. Department of Labor announced the new proposed regulations regarding the regulation of investment advice under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (the Code). The rules that were in place since 1975 were replaced on April 9, 2016 with a revised fiduciary regulation. However on March 15, 2018 the U.S. Court of Appeals for the Fifth circuit issued an opinion, followed by its mandate on June 21, 2018 vacating the 2016 rulemaking in total. For practitioners following this rule and for those in the employer sponsored retirement space this is welcome news, bringing this full circle.

The new proposed class exemption is designed to promote fiduciary investment advice that meets the best interest standard and other Impartial Conduct Standards. The Department believes the approach taken in the new proposed class exemption will preserve wide availability of investment advice arrangements and products for retirement investors. The new proposed class exemption is designed to promote fiduciary investment advice that meets the best interest standard and other Impartial Conduct Standards. The Department believes the approach taken in the new proposed class exemption will preserve wide availability of investment advice arrangements and products for retirement investors.

Best Interest Standard
•     Investment advice fiduciaries relying on the class exemption would have to provide advice in the best interest of retirement investors.
•     The best interest standard is satisfied if the advice is:
            o   Prudent: the advice reflects the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk tolerance, financial circumstances, and needs of the retirement investor, and
           o    Loyal: the advice does not place the financial or other interests of the investment professional, financial institution or any affiliate, related entity, or other party ahead of the interests of the retirement investor, or subordinate the retirement investor’s interests to their own.

The best interest standard in the new proposed class exemption is aligned with the conduct standards in the Securities and Exchange Commission’s Regulation Best Interest and the fiduciary duty of registered investment advisers under securities laws. Under the class exemption, financial institutions would be required to document the specific reasons that recommendations to roll over employee benefit plan assets from a plan to an IRA, or from one type of account to another, are in the best interest of the retirement investor.

The Department requests comments on the new proposed class exemption within 30 days of the date of publication in the Federal Register. Comments may be submitted at www.regulations.gov at Docket ID number: EBSA-2020-0003. Comments received will be included in the public record and will be made available online at www.regulations.gov and https://www.dol.gov/agencies/ebsa. The temporary enforcement policy announced in FAB 2018-02 remains in place.

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