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DOL Finalizes Fiduciary Definition and Conflict of Interest Rule

"The final rule first describes the kinds of communications or categories of advice that constitute 'investment advice.' It then describes the types of relationships and circumstances that give rise to fiduciary investment advice and thus subject the advice provider to fiduciary standards and certain prohibited transaction rules intended to address conflicts of interest and those types in which they do not. [This article includes] summaries of these two parts of the final rule, along with observations on the differences between the final rule and the proposed rule."  MORE >>

Proposed Fiduciary Definition Would Impact Investment Adviser Practices

"The broader definition of investment advice fiduciaries, combined with the exclusion of communications to IRA owners from the carve-outs for seller transactions, platform providers and selection and monitoring assistance, would sweep more relationships with IRA owners into exposure to prohibited transaction excise taxes. The proposed amendments to current prohibited transaction exemptions would drive advisers to IRA owners toward reliance on the new proposed Best Interest Contract Exemption, which makes investment advisers agree to the same fiduciary standards as apply under ERISA and gives IRA owners enforceable rights ... Thus, under the proposed DOL scheme, what is not required by statute will be imposed by contract."  MORE >>

Text of Letter to DOL from Democratic Congressmen on Changes to Fiduciary Definition (PDF)

"[We] continue to believe that any new definition should not limit access to investment education and information. We certainly want to protect plan participants, IRA owners, and plan sponsors from unfair and deceptive practices. But this should be done in a way that does not restrict access to critical investment assistance.... [We] strongly believe that there needs to be coordination with other regulators to ensure that all regulatory efforts with respect to fiduciary standards work together in a way that serves retirement savers effectively."

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Stunning Academic Study May Cause DOL to Retain Original Proposal for Fiduciary Definition

"[A study by two professors entitled] 'The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice' ... has revealed a stunning conclusion: IRA investors and the brokerage industry are both statistically unlikely to suffer --and some may actually benefit -- should the DOL adopt its new Fiduciary Rule as originally proposed."  MORE >>

DOL's Proposed New ERISA 'Fiduciary' Definition (PDF)

3 pages. Excerpt: The DOL indicated that, by giving a broader and clearer understanding of the circumstances that will cause persons providing such advice to be subject to ERISA's fiduciary standards, the proposed regulation would better protect plan participants from conflicts of interest and self-dealing.

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Newly Proposed DOL Fiduciary Rule: Moving to a Universal Fiduciary Standard (PPT)

33-slide Powerpoint presentation. Topics include: [1] Background on existing rule; [2] Proposed fiduciary definition; [3] Carve-outs from definition; [4] Proposed best interest contract exemption; [5] Other proposed exemptive relief; and [6] Timeline for rulemaking.  MORE >>

Beyond Wall Street's Myth: The Little Guy Will Be A-OK Under New Fiduciary Definition (PDF)

"The employer and employees have a one in a million shot to successfully sue the advisor if XYZ tanks and ABC soars. But the employees have a much greater shot to successfully sue the employer that thought it did its homework and relied upon the advisor who gets off scot-free. The DOL proposal makes certain advisors in certain conditions 'fiduciaries' under ERISA. It also extends that fiduciary definition to advisors, brokers, etc. of IRAs.... The DOL is targeting the advisor who provides advice and gets paid for it, requiring a common sense degree of honesty currently not required. If you are an employer, employee, or IRA owner, ... you should be thrilled if the regulation becomes law."

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DOL Web Page: Public Comments on Proposed Fiduciary Definition

The linked page on the DOL website lists the comment letters submitted on the fiduciary definition regs and prohibited transaction exemptions proposed on April 14, 2015, with clickable links to the full text of each comment. The comment period closed on July 21, 2015.

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Update on the Proposal for a Broader 'Fiduciary' Definition (PDF)

"The DOL's pending proposal to broaden its 'investment advice fiduciary' definition is likely to 'shake up' the retirement plan industry, pressuring many retirement plan advisors to provide their services in a fiduciary capacity for a level fee. If the DOL's re-proposed rule is similar to its initial proposal, any advisor that is unwilling to advise plan clients on these terms may, as a practical matter, be forced out of the retirement plan business."  MORE >>

SEC Committee to Discuss 'Fiduciary' Definition

"The [SEC's] Investor Advisory Committee will host a panel discussion on the topic of who is required to serve in the client's best interest during a public meeting in Washington D.C. on [September 19].... The panel discussion [is] titled, 'Investment Advice: A History and Update on Who is Required to Serve in Your Best Interest.' "  MORE >>

The New Fiduciary Rule, Part 31:The DOL’s Final Fiduciary Definition Compared to the Proposal

"A quick comparison reveals that the most significant change is in the additional requirement that the recommendation must reflect the application of professional or expert judgment to the retirement investor's particular needs or individual circumstances."

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A Long and Winding Road: DOL's Final Fiduciary Definition and Exemptions for Investment Advice

68 pages. "Rollover advice is explicitly included in the regulation as a form of fiduciary advice.... PTE 2020-02 ... would be the flagship DOL exemption providing relief for conflicted investment advice ... Compliance with other 'best interest' and conflict mitigation regulations [does] not suffice under PTE 2020-02.... [T]he application of the Final Rule to insurance distribution remains complex.... [E]lements of the Final Rule create the predicate for a potential private right of action by IRA owners."  MORE >>

DOL Again Seeks to Amend Five-Part 'Investment Advice' Fiduciary Definition Under ERISA and the Code

"Most significantly, the proposed rule expands DOL's regulatory definition of an 'investment advice fiduciary' to both ERISA employee benefit plans and to IRAs.... The proposal would extend ERISA's fiduciary reach to one-time investment advice and replace the existing five-part test with a broader three-part standard[.]"  MORE >>

DOL’s Fiduciary Rule 3.0: Exemption and Investment Advice Fiduciary Definition (PDF)

22 pages. "While the final guidance broadly retains the structure and approach of Proposal 3.0, DOL incorporated the following important changes ... [1] DOL further explicated and tightened its discussion of the circumstances in which it will consider rollover advice to be fiduciary 'investment advice,' under a new interpretation of the 1975 5-part test. [2] Where rollover advice is conflicted fiduciary advice that requires the relief of the new PTE, DOL added as a condition written disclosure to Retirement Investors of the reasons that a rollover recommendation is in their best interest.... DOL announced [a February 16, 2021 effective date] for the new PTE and sunset date for reliance on DOL's prior guidance on rollover advice ... and a December 20, 2021, sunset date for its temporary enforcement policy adopted after vacatur of Final Rule 2.0."  MORE >>

The DOL's Fiduciary Proposal 3.0: Exemption and Investment Advice Fiduciary Definition (PDF)

21 pages. "[It] now is more widely understood that: [1] There can be no financial services business model that is unconflicted in the absolute sense that ERISA presumes fiduciaries can be; and [2] At least in part, these conflicts arise from the industry's function in our financial system and are shaped by the primary pattern of regulation to which that industry is subject. Because those financial services are indispensable to the operation of the private retirement system, ERISA's share of the regulation of those industries must accommodate to those realities."  MORE >>

DOL Finalizes Overhaul of Investment Fiduciary Definition

"[T]wo implications for larger plans are... [1] A consultant who is hired by a plan to provide investment advice on a one-time basis will now be considered a fiduciary. For example, a consultant who is hired to assist in selecting an annuity provider in connection with the termination of a defined benefit plan will be considered a fiduciary as a result of providing investment advice.... [2] Any recommendation as to the amount and destination of a distribution or rollover from a retirement plan also constitutes investment advice resulting in fiduciary status under the new rule."  MORE >>

Text of DOL Final Rule: 'Fiduciary' Definition; Conflict of Interest Rule for Retirement Investment Advice

208 pages. "This document contains a final regulation defining who is a 'fiduciary' of an employee benefit plan under [ERISA] as a result of giving investment advice to a plan or its participants or beneficiaries. The final rule also applies to the definition of a 'fiduciary' of a plan (including an [IRA]) under the Internal Revenue Code ... The final rule treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a wider array of advice relationships....

"[The DOL] has determined that, in light of the importance of the final rule's consumer protections and the significance of the continuing monetary harm to retirement investors without the rule's changes, an applicability date of April 10, 2017, is adequate time for plans and their affected financial services and other service providers to adjust to the basic change from non-fiduciary to fiduciary status. The Department has also decided to delay the application of certain requirements of certain of the exemptions being finalized with this rule....

"The Department has also sought to preserve beneficial business models for delivery of investment advice by separately publishing new exemptions from ERISA's prohibited transaction rules that would broadly permit firms to continue to receive many common types of fees, as long as they are willing to adhere to applicable standards aimed at ensuring that their advice is impartial and in the best interest of their customers. Rather than create a highly prescriptive set of transaction-specific exemptions, the Department instead is publishing exemptions that flexibly accommodate a wide range of current types of compensation practices, while minimizing the harmful impact of conflicts of interest on the quality of advice.... This broad regulatory package aims to require advisers and their firms to give advice that is in the best interest of their customers, without prohibiting common compensation arrangements by allowing such arrangements under conditions designed to ensure the adviser is acting in accordance with fiduciary norms and basic standards of fair dealing."  MORE >>

Proposed Fiduciary Definition Creates More Questions Than Answers (PDF)

15 pages. "A large body of long-standing prohibited transaction exemptions is being displaced by a new series of complicated exemptions that interrelate with the new proposed rule, as well as the relevant statutes, in complex ways. The proposed changes take hundreds of pages to explain and, ultimately, create more questions than answers."  MORE >>

Investment Company Institute Supplemental Comment Letter to EBSA on Proposed Fiduciary Definition and Conflict of Interest Rules (PDF)

"This supplemental letter explains why the asset-weighted average return for categories of mutual funds, rather than the simple average, is the appropriate measure for assessing the overall experience of investors using broker-sold funds.... We also provide additional detail about why a large share of IRA investors will not be able to get access to fee-based advice under the Department's proposed rules, even if those advisers also manage taxable investable assets on behalf of these households."  MORE >>

PSCA Comment Letter to DOL on Proposed Fiduciary Definition (PDF)

"[M]any concerns rest upon an overly broad reading of the Proposed Rule's scope. In clarifying that scope as limited to persons or entities rendering investment advice for a fee, it may be helpful if the final regulation includes additional examples or model language that sharpen s the distinction between investment 'recommendations' and mere 'neutral, informative descriptions' of plan or IRA operations, investment options or taxation."  MORE >>

A Small Business Owner Tells Senators Why the Proposed Fiduciary Definition Will Hurt Her Employees

" 'Many of my employees cannot afford to pay for investment education separately and might be discouraged from investing in the plan at all if the company did not provide this benefit,' [Minnesota small business owner Darlene Miller told senators]. The worst consequence is the rule will drive financial advisers from serving small business customers, because of increased complexity and costs."  MORE >>

Retirement Advisor Council Comment Letter to DOL on Proposed Fiduciary Definition (PDF)

7 pages. "[The] final regulation needs to be enhanced from the current proposal in nine areas [including]: ... Acknowledge that the evaluation of investment options involves more than price comparison; Overcome the preconceived notion that advisors are necessarily conflicted; Acknowledge that fiduciary investment advice is a process delivered over time, not a one-time transaction.... Expand on the distinctive practices for small plans and large plans.... Expand on the situation of plan sponsors who do not use the services of a fiduciary plan advisor and rely exclusively on the services of their recordkeeping service provider for investment advice, investment array construction, participant education or participant advice."  MORE >>

DOL's Proposal to Expand Fiduciary Definition Would Bring Many Service Providers Into Scope

10 pages. "The reproposed definition of 'fiduciary' is intended to expand the scope of activities that will result in fiduciary status and application of the prohibited transaction rules, particularly covering many services that broker-dealers and other financial advisers provide to plans, plan participants, and Individual Retirement Account (IRA) owners. The DOL has provided exceptions for certain activities that, in its view, should not result in fiduciary status. The reproposal leaves ope n questions about what types of investment-related activities or communications may still be viewed as nonfiduciary even though they do not fall within one of the six carve-outs."  MORE >>

DOL Reproposes Fiduciary Definition for ERISA Plans and IRAs (PDF)

"Most notably, this new definition would remove the requirements from the five-part test that the applicable advice be made 'on a regular basis' and as the 'primary basis for investment decisions.' ... [T]he Proposed Rule could cover a single instance of advice provided that it is Covered Advice and meets the other requirements and the adviser only needs to acknowledge that its advice will be considered by the recipient in connection with investment decisions related to assets of an ERISA-covered plan or IRA."  MORE >>

DOL's New Proposed Fiduciary Definition: Start Preparing Now

"This alert is not intended to fully explain the extensive Proposal, but instead it suggests what an employer, pension consultant, insurance salesman or investment advisor should consider doing now to prepare for the date the final regulations and prohibited transaction exemptions are issued.... The Proposal is not minor and will require many changes in operations of many parties dealing with retirement plans and IRAs. While the DOL has indicated there will be 8 months following the effective date (which will be 60 days post issuance of the final regulation) in which to bring your plan or entity into compliance, even this almost 10 month period may not be sufficient to accomplish full compliance for all regulated parties. In addition, each party's compliance will depends on the compliance of the other parties with which it interacts."  MORE >>

Once More Unto the Breach: The New 'Fiduciary' Definition

"The Proposed Regulations would not require that advice be individualized to the needs of the plan, participant, or IRA owner. If the advice merely is 'specifically directed to' the participant or IRA owner, that would be sufficient to cause it to be fiduciary advice.... [T]he Preamble to the Proposed Regulations states that ... lawyers, accountants, and actuaries would not be treated as fiduciaries merely because they provide such professional assistance in connection with a particular investment transaction. Despite the Preamble statement, however, the actual language of the proposal is not clear on this point, and there is no express carve-out for such professional services.... In a departure from existing law that has been in effect since 1996, the carve-out for 'investment education' would not permit the use of asset allocation models that refer to specific investment products available under the plan or IRA."  MORE >>

DOL's Re-Proposed Fiduciary Definition Widely Prohibits Personalized Investment Assistance Even If the Assistance Is in Customer's Best Interest

7 pages. "The framework set up by the DOL could work conceptually, but in its current form, it would have the same effects as the original 2010 proposal -- cutting off the option for low and middle-income individuals and small businesses to receive personalized investment assistance.... The re-proposal [includes] an exemption from the prohibited transaction rules that could, if it worked correctly, preserve access to investment assistance. But the exemption does not work: it is extremely narrow, is not principle-based, and includes such impractical conditions that it is unusable."

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DOL Reproposes Expanded ERISA Fiduciary Definition and Revised Complex of Exemptions

"DOL made a legitimate effort, from its frame of reference, to address a number of criticisms of the earlier proposal made formally during the 2010-2011 rulemaking process and informally during the intervening years.... On balance, however, there is substantial reason to question both the justification for and the execution of the reproposal. At bottom, the reproposal does not target 'bad actors' for reform. Instead, it would materially modify otherwise permissible practices in the affected industries and impose substantial compliance costs, uncertainties and exposure on 'good actors.' Consequently, important interests of plan sponsors, participants, IRA owners, financial services providers and the retirement system as a whole are in play."  MORE >>

EBSA Issues Regs -- and More -- on Fiduciary Definition and Duty (PDF)

"With the objective of preventing conflicts of interest from influencing the advice given to plans, participants, beneficiaries and IRA owners -- while maintaining the availability of needed investment advice -- EBSA is creating new PTEs and amending several existing ones.... EBSA indicates that the centerpiece of these exemptions is intended to allow an advisor or firm (or both) substantial freedom in maintaining existing preferred compensation practices[.]"  MORE >>

BenefitsLink Collection of Prior Commentary on the Fiduciary Definition/Standard for Investment Advice

A list of curated items collected by BenefitsLink, about the definition of fiduciary, and the standard for investment advice.  MORE >>

Fiduciary Definition May Tighten for Brokers

"A White House announcement of the so-called fiduciary rules is expected to generate significant pushback from Wall Street, which says it already faces robust regulation and warns the rules' likely costs could make it uneconomical for brokers to serve lower-balance accounts. It likely would take several additional months for the Labor Department, which is drafting the rules, to collect public feedback before it can move to implement the rules. The administration is concerned investors aren't aware that brokers benefit financially by selling products that may not be in a client's best interest but still rise to the lower standard of being suitable investments."

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DOL Delays Revision of 'Fiduciary' Definition

"[EBSA's] re-proposal of the controversial rule has been delayed again, this time until January 2015 ... Assuming a six-month comment period and six months of hearings to develop final regulations, the final rule could be up for a vote in early 2016.... While it is true that the way Americans save for retirement looks different today than it did in 1974, the challenge for the DOL is to ensure the cure is no worse than the ailment. The EBSA's challenge is to draft regulations that protect plan participants and IRA investors from true conflicts of interest resulting in unsuitable investment advice, but that do not have a significant unintended chilling effect on the provision of suitable investment advice."  MORE >>

Agency Action on Fiduciary Definition Delayed (Again)

"During his confirmation hearings last year, U.S. Labor Secretary Thomas Perez had promised to meet with stakeholder groups who have been involved in this rulemaking process. Some view the delay as an opportunity for the Secretary to do so.... [T]he delay may be attributable to the need to fine-tune and work through the technical and complex provisions of the rule -- particularly efforts to ensure that the rule does not make it difficult for small retirement accounts and small businesses to get access to investment assistance."  MORE >>

House Passes Bill to Delay Fiduciary Definition at SEC and DOL

"The bill, which was approved in a 254-166 vote, has virtually no chance of becoming law, after the White House late Monday threatened to veto the measure. Its passage, however, marks yet another symbolic effort by Republicans to express their discontent over the sweeping new regulations that stem from the 2010 Dodd-Frank Wall Street reform law."  MORE >>

Letter from Republican Senators to DOL on Proposed Fiduciary Definition and Its Effect on ESOPs (PDF)

"We share these myriad concerns over the proposed rule's negative impact on investors and do not want to see access to investment advice narrowed. Furthermore, we write today to also share our grave concern over the less often discussed harm it poses to our nation's [ESOP] companies.... We find it troubling that ... the success of ESOPs are seemingly ignored by [the DOL].... The Labor Department's efforts to expand the definition of fiduciary to include independent ESOP appraisers will only hurt the very employees it seeks to protect."  MORE >>

AICPA Opposes Expansion of Fiduciary Definition to Include ESOP Appraisers

"The Internal Revenue Code (IRC) requires that ESOP valuations be obtained from an independent appraiser at least annually. If the DOL were to redefine an ERISA fiduciary to include ESOP appraisers, an inherent conflict would arise between the DOL and IRS requirements for ESOP appraisers. An ERISA fiduciary must act solely in the interest of plan participants and their beneficiaries and therefore cannot provide an independent, third-party objective perspective."  MORE >>

Text of Letter from Assistant Labor Secretary Phyllis Borzi to Congress on DOL's Fiduciary Definition Project (PDF)

"While the Department was disappointed not to receive many of the suggested data elements from industry sources, we have met with industry representatives and asked them to provide whatever information they had that would be useful to our efforts. We appreciate the information that has been sent and are working diligently to review and assess it.... The Department is not yet in a position to answer questions regarding the specific studies or data we will rely on in our proposal because the economic analysis is not yet complete.... It is our intention to include accompanying proposed prohibited transaction guidance, as well as the relevant economic analysis, with any proposed regulation. All of these elements will be transparent and fully subject to the appropriate notice-and-comment rulemaking process."

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DOL to Re-Propose Amendments to Fiduciary Definition Regulation (PDF)

First, the DOL specifically noted that it intends to clarify that'fiduciary advice' is limited to individualized advice directed to specific parties. This should be helpful in avoiding fiduciary status in the development of advice products before there is a specific customer in mind.  MORE >>

Attorneys and Legislators Urge New Proposal for Fiduciary Definition Change

'The hearing this morning displayed the most bipartisanship I've seen in 10 years, and the message from the Committee to the Department was very clear--do not proceed to a final rule, but re-propose a revised rule with a valid economic analysis.

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DOL's Proposed Fiduciary Definition Might Have Participant-Adverse Consequences

"[The DOL] has proposed to expand the definition of 'fiduciary' under ERISA section 3(21) with regard to investment advisers and those providing valuation services to employee benefit plans.... [W]e think that plan sponsors could be forced to curtail the information provided to participants regarding the investment options offered. In this respect, the proposal inadvertently could work to the detriment of plan participants by limiting investor education efforts."  MORE >>

A Response to Eugene Scalia's Letter to DOL Regarding the Proposed Change to ERISA's 'Fiduciary' Definition

"[T]he Department has attempted to pound a square peg into a round hole by using over 1,100 words to redefine the meaning of the phrase 'investment advice' -- as used within the statute -- to significantly broaden the definition of a plan 'fiduciary.' ""  MORE >>

DOL Proposal to Update ERISA's Fiduciary Definition: Right Thought, Wrong Approach

"[Since] only Congress has the power to amend ERISA in this fashion. As a result, the Department should be focusing its efforts on convincing Members of Congress of the value of its position rather than assuming it has the authority to change any law it feels has become outdated."  MORE >>

Congressional Republicans Letter to DOL Regarding Proposed Fiduciary Definition Regulations (PDF)

5 pages. "The regulatory proposal issued by the Department completely rewrites the regulatory structure to broadly define and substantially expand who would be considered a fiduciary."  MORE >>

One More Week for Comment on DOL's Fiduciary Definition Regulation

Most of the criticism centers around the idea that the expanded regulation will increase cost and limit investment options for investors. [The target page links to top articles from the past week on the subject.]

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Fiduciary Definition Change Comment Period Set to Close April 12

Comments can be submitted electronically to e-ORI@dol.gov with subject line: Public Hearing on Definition of Fiduciary, or on paper to EBSA's Office of Regulations and Interpretations, Attn: Public Hearing on Definition of Fiduciary, Room N-5655, U.S. Department of Labor, 200 Constitution Ave. NW, Washington, DC, 20210.

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New Federal Fiduciary Definition May Have Adverse Impact on ESOP Marketplace

The premise is that by widening the fiduciary net, it will be easier for regulators to hold those who act in their own interests, at the expense of participants, accountable and this wider net is meant to include those conducting valuations for ESOPs.

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EBSA Extends Comment Period for Fiduciary Definition Change

[EBSA announced] that the deadline is being extended for 15 days after the date the official transcript of the EBSA March 1-2, 2011 public hearing ... on the proposal becomes available online and in the agency's Public Disclosure room. EBSA said the release of the meeting transcript is not yet scheduled.

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Testimony of ICI at Hearing on Fiduciary Definition Proposal

[T]he rule should create fiduciary duties only when the adviser provides advice or recommendations individualized to the plan or participant. Unfortunately, the proposal does not require that an investment recommendation be specific to the plan or its participants.  MORE >>

Interview with Stephen Rosenberg Who Explains DOL's New Fiduciary Definition

"[Question]: What are some of the implications of the new definition that will change the way advisers do business? Rosenberg: At the end of the day, the most likely outcome is simply that advisers will have to be more willing to accept the risk of becoming a fiduciary with regard to the services they are directly providing, and it will be harder to create a scenario in which they can sell their services while still disavowing that status."  MORE >>

EBSA Sets 2011 Hearing on Fiduciary Definition Change

Excerpt: An EBSA news release said the session will be March 1 and, if necessary, March 2 in Washington. According to the announcement, the department expects to issue a formal notice with details on the public hearing and the submission of requests to testify in early January 2011.

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